Political Shockwaves Cause Decline in JCI Following Cabinet Reshuffle
Indonesian stocks experienced a significant downturn on Monday after President Prabowo Subianto reshuffled his cabinet, notably removing the highly respected Finance Minister Sri Mulyani Indrawati.
The Jakarta Composite Index (JCI) closed the trading day down by 1.28 percent, settling at 7,766.85 and shedding a total of 100.5 points, signaling an immediate, negative reaction from the capital market to the political change.
In contrast to the equities market, the rupiah demonstrated strength, appreciating by 0.75 percent to close at Rp 16,309 per US dollar.
President Prabowo appointed Purbaya Yudhi Sadewa, the former chief of Indonesia’s Deposit Insurance Corporation (LPS), as the new finance minister for the remainder of his 2024–2029 term.
While Mr. Sadewa’s background as a capable academic and policy thinker is generally acknowledged by economists, many market analysts are expressing genuine concern over his perceived limited hands-on experience in the complex field of direct fiscal management and state finances.
Fadhil Hasan, a senior economist at the Institute for Development of Economics and Finance (Indef), articulated this sentiment, stating, “Purbaya is a capable economist, but he has no direct track record managing state finances.”
He concluded that the appointment was “not the best choice compared to Sri Mulyani, who enjoyed strong credibility both domestically and internationally,” a perception that directly influenced the drop in the JCI.
Sri Mulyani’s Legacy and Market Credibility
The departure of former Finance Minister Sri Mulyani Indrawati is the primary driver of the market’s unease, reflecting her strong legacy of fiscal discipline and her unparalleled credibility among both domestic and international investors, a reputation that consistently helped stabilize the market.
Sri Mulyani, a former World Bank managing director, was widely credited for her crucial role in maintaining tight fiscal discipline and bolstering investor confidence throughout two decades marked by significant political turbulence in Indonesia.
Under her long stewardship, the nation consistently earned praise from global financial markets for its prudent budgeting practices, even during President Joko “Jokowi” Widodo’s second term, when increased debt levels and populist spending initiatives began to draw greater scrutiny.
Her presence was often viewed as a guarantor of economic stability, and her removal introduced a substantial element of fiscal policy uncertainty, contributing directly to the steep fall observed in the JCI.
Rumors of Sri Mulyani’s potential resignation had been circulating for some time, and these escalated significantly following nationwide protests earlier this month regarding economic inequality.
The minister had even faced a shocking incident where her house was looted by an angry mob.
While she offered an apology on social media following the incident, she did not immediately step down, making her ultimate removal by the President a definitive political shockwave.
The market reaction, specifically the sharp dip in the JCI, highlights the critical importance that global investors place on continuity and proven experience in managing Indonesia’s vast state finances.
Broader Cabinet Changes and New Ministerial Appointments
The cabinet reshuffle initiated by President Prabowo extended beyond the crucial finance ministry, affecting several other key posts and resulting in the creation of a new ministry, reflecting a broader attempt to realign the political and administrative structure.
In addition to the removal of Sri Mulyani, the cabinet reshuffle also saw the dismissal of Chief Security Minister Budi Gunawan and Sports Minister Dito Ariotedjo, although their immediate replacements were not named in the announcement.
Furthermore, President Prabowo dismissed Cooperatives Minister Budi Arie Setiadi, a notable and close political ally of former President Jokowi, replacing him with his deputy, Ferry Joko Juliantono.
This specific change is viewed by political observers as a move to reduce the influence of the previous administration’s circle within the new cabinet structure.
Another significant change was the appointment of lawmaker Mukhtarudin as the new migrant worker protection minister, addressing a long-standing need for dedicated high-level focus on the welfare and rights of Indonesian workers abroad.
Perhaps most notably, President Prabowo took the initiative to create a brand-new Hajj and Umrah Ministry, appointing Mochamad Irfan Yusuf to lead it.
The establishment of a ministry dedicated solely to Hajj and Umrah affairs underscores the immense political, social, and logistical importance of the annual pilgrimages for Indonesia, the world’s largest Muslim-majority nation.
These broader cabinet changes, while not directly impacting the economy as immediately as the finance minister’s replacement, signal a clear shift in administrative priorities and political alignment under the new administration.
