JAKARTA — The appointment of new economic ministers by Indonesian President Joko Widodo Wednesday has raised hopes, as well as fresh questions, for his economic reform agenda which has battled strong headwinds.
Widodo reshuffled six posts, including two key economic ministers. Trade Minister Rachmat Gobel was replaced by Thomas Lembong, a Harvard graduate and former investment banker. Coordinating Economic Minister Sofyan Djalil was replaced by Darmin Nasution, the central bank governor from 2010 to 2013. Djalil’s new post is minister of national development planning.
The appointment of Nasution and Lembong has been welcomed by those who feared party hacks might be appointed based on political connections.
“As a former central bank governor, [Nasution] knows very well the fiscal and macroeconomic matters that need to be addressed,” said Djayadi Hanan, executive director at Saiful Mujani, a Jakarta political consultancy.
Gobel’s decision to slash cattle imports led to beef prices surging and protests from consumers already struggling with a sliding rupiah and growing inflation.
“It is no surprise that the trade minister was replaced,” said Yohanes Sulaiman, a lecturer at the Indonesian National Defense University. “Many business people said he was incompetent.”
Cabinet reshuffles are a common feature of Indonesian politics, but Wednesday’s reshuffle, less than a year after Widodo took office, came amid mounting concern over the flagging economy.
When Widodo scrapped gasoline subsidies at the beginning of the year to free up the state budget for national investment, it was viewed as a demonstration of his ability to act swiftly. But the Central Statistics Agency recently said that only 10% of the government’s planned infrastructure spending for the year went through in the first six months.
Hit by tumbling commodity prices and depressed consumer spending, Indonesia’s gross domestic product grew 4.67% year on year in the second quarter, slipping below 5% for the second consecutive quarter. Economists have warned that any increase will be difficult if the lack of progress in government spending persists.
There have been renewed concerns that the new appointments will impede government spending rather than speed it up. In a note to investors, local brokerage Bahana Securities said the “adaptability of new ministers will be crucial” to achieving the disbursement target.
The appointment of a former central banker is seen as a message to calm financial markets. Stemming from concerns over an interest rate hike in the U.S. and China’s sluggish economy, the Indonesian rupiah has declined to its lowest level against the dollar since the financial crisis in the late 1990s. The currency hit a fresh 17-year low on Wednesday as the Chinese central bank devalued the yuan for the second day in a row.
Nasution told reporters that as “an old man in Bank Indonesia” he knew all the officials there. He said coordination with the central bank needs to be improved so that “the weakening of the rupiah can be addressed together.”
Some of the other reshuffles are regarded as favorable to Widodo’s Indonesian Democratic Party of Struggle (PDI-P), which backed his successful run for the presidency late last year.
Pramono Anung, a senior PDI-P figure, has been nominated as cabinet secretary, replacing Andi Widjajanto, a confidant of the president but unpopular with other PDI-P members.
Puan Maharani, daughter of PDI-P leader Megawati Sukarnoputri, was the only coordinating minister to retain her post in the reshuffle.
“My gut feeling is that some of these appointments were of course about appeasing Megawati,” said Sulaiman.
“The cabinet reshuffle is the best bridge to fulfill my promise to the people. Let’s work!” Widodo tweeted after the cabinet announcement.Show