Source: Bloomberg, October 22 2019

By: Karlis Salna, Arys Aditya, and Viriya Singgih

Indonesian President Joko Widodo reappointed Sri Mulyani Indrawati as finance minister in a new cabinet, providing stability to his team as he seeks to deliver on pledges to boost Southeast Asia’s biggest economy.

A former World Bank managing director, 57-year-old Indrawati came into Widodo’s first-term cabinet as finance minister in July 2016. She’s been credited with stabilizing government finances, helping Indonesia earn multiple credit-rating upgrades.

“Indonesia today is facing a global economy that is very dynamic and
uncertain and a weakening economy that brings pressure from all over the
world,” Indrawati told reporters Tuesday after meeting with Jokowi, as the
president is known. “Hence, we need continuous policies in guarding our
economy.”

Jokowi was sworn in Sunday for another five years against the backdrop of
weakening economic growth and a public backlash over some policy proposals. He has put economic reform at the heart of his second-term
agenda, promising to overhaul laws that hinder investment and job creation.

The president also drafted his main political rival, Prabowo Subianto — who
Jokowi defeated in the April election — into the cabinet, strengthening his
grip over the parliament. Another key addition was 35-year-old Nadiem
Makarim, co-founder of ride-hailing service Gojek.

Message to Markets

Indrawati so far is the only member of the incoming cabinet to state which post she’ll hold. She said the president had asked her to confirm her role to the media, a sign Jokowi wants to reassure investors.

“This will be seen as positive by the market,” said Enrico Tanuwidjaja, head of economics and research for PT UOB Indonesia in Jakarta. Jokowi’s second-term agenda, including plans for labor-law reform and to relocate the nation’s capital, would be best served by continuity, he said.

“With Indrawati as finance minister we can still be prudent but also afford to spend a little bit more, especially in productive sectors, to retrain labor and shift subsidies into more development,” Tanuwidjaja said.

The rupiah extended gains after Indrawati’s appointment was announced, rising as much as 0.3% to the highest since Sept. 16. The benchmark Jakarta Composite Index was 0.2% lower at 6,184.828 by 11:33 a.m. local time.

Jeffrosenberg Tan, director and head of investment strategy at PT Sinarmas Sekuritas, said Indrawati’s “credibility on fiscal restraint” would gladden foreign investors. But some domestic constituents might be less sanguine, said Harry Su, head of equity capital markets at Samuel International.

“The capital market participants love her as a symbol of good governance, while some businessmen may fear her tax regime,” Su said.

Slower Growth

Indonesia’s growth has hovered around 5% for most of Jokowi’s first term, not fast enough to create jobs for the millions of young people who enter the workforce every year and combat poverty. The International Monetary Fund last week revised down its forecast for Indonesia’s growth for this year to 5%, from a July estimate of 5.2%.

Indrawati also served as finance minister from 2005 to 2010 under Susilo Bambang Yudhoyono, building a reputation as a strong technocrat and economic reformer. Following a stint at the World Bank in Washington,
Jokowi lured her back, and she helped to steer an ambitious tax amnesty program early on.

A former university academic, the finance minister has a PhD degree in economics from the University of Illinois. In her three years in office, she’s been focused on getting Indonesians to pay more taxes to help bolster government revenue.

(Adds Indrawati quote in third paragraph, analyst quotes in seventh paragraph.)

–With assistance from Rieka Rahadiana and Harry Suhartono.