Indonesian President’s Cabinet Reshuffle Reassures Markets

Indonesian President Joko Widodo looks to be holding his own against attempts by his patroness Megawati Sukarnoputri, putting two experienced longtime technocrats into key economic management posts on Aug. 12 as he reshuffled his cabinet to reassure investors worried over a sharply slowing economy.

The appointments came against the backdrop of a falling rupiah on region-wide contagion from China’s yuan devaluation, accompanied by a tumble in Jakarta Composite Index shares OF 3.1 percent to 4,479.49, the lowest close since February 2014. The yield on sovereign bonds due September 2026 climbed 20 basis points to 8.79 percent, according to the Inter Dealer Market Association.

Jokowi, as he is known, appointed Darmin Nasution, an ally of ousted reformer Sri Mulyani Indrawati, as chief economics minister. Darmin, a graduate of the Sorbonne in Paris, served as central bank governor from 2010 to 2013 under former President Susilo Bambang Yudhoyono. He earned wide respect in the business community and the financial markets with his performance.

Jokowi also appointed as trade minister Thomas T. Lembong, a former chief executive of Quvat Management, a Singapore-based private equity firm, who also worked previously at Deutsche Bank and Morgan Stanley. He was a senior vice president at IBRA, the Indonesian Bank Restructuring Agency that was set up to recapitalize the country's destitute banking system after it was looted in the wake of the 1998 Asian financial crisis.

Lembong replaces Rahmat Gobel, the former owner of Panasonic’s manufacturing facilities in Indonesia, who was generally considered a flop and who was jokingly referred to by one foreign business leader as “the Minister of No-Trade.”

"I don't think this means that the internecine warfare is over but Darmin and Lembong would seem solid," said a Jakarta-based political analyst. Jokowi did accommodate a single additional political appointee from the party, Pramono Anung, as cabinet secretary.

A source familiar with Jokowi's reshuffle plan told Reuters he was keen to dispel impressions of weak leadership and policy muddle. There had been widespread concern in Jakarta that the president, who has been bullied by Megawati almost from the time he became president in October of 2014, would bend to her wishes and replace departing members with hacks from her Indonesian Democratic Party of Justice, or PDI-P. In April, at a party conclave in Bali, Jokowi wasn’t even allowed to take the stage while Megawati lectured him on his responsibilities to the party, which was interpreted as being too slow to pass out the spoils.

Among other things, the two were at considerable loggerheads over her attempts to push a thoroughly corrupt national police chief on the country. The candidate, Budi Gunawan, was indicted by the Corruption Eradication Commission, but ended up as deputy police chief in any event. There have also been substantial concerns that the corruption watchdog, known by its initials KPK, would be dismantled although those concerns have been alleviated to some extent.

Jokowi’s reputation for honesty and effective government during his short period as Jakarta governor before being elected to the presidency have suffered badly as he has looked indecisive over the past year. Although he appointed 20 figures with professional backgrounds to his original cabinet, others had close relationships with Megawati, earning a downbeat response from the markets.

Among other important appointments:

Luhut Binsar Panjaitan, a retired general and former close advisor to Jokowi’s presidential election campaign, keeps his job as presidential chief of staff and takes on the additional role of coordinating minister for security and political affairs.

Rizal Ramli, a prominent economist, takes over the post of Coordinating Minister for Maritime Affairs. Ramli served as Coordinating Minister for Economic Affairs and Minister of Finance in 2000 and 2001 in the administration of President Abdurrahman Wahid. The maritime affairs ministry is an extremely powerful job, coordinating energy, tourism, maritime and is a big focus for infrastructure development. Ramli is considered very much an economic nationalist and holds protectionist views.

There had been concerns that Sudirman Said, the Minister of Energy and Mineral Resources, might lose his job. However, he has been retained Sudirman is well thought of, formerly serving as director of human Capital for PT Pertamina, Indonesia's large state-owned petroleum company, and Vice President Director of PT Petrosea, the local energy and resources contractor. He was also Deputy Chief of the Aceh Rehabilitation and Reconstruction Agency (BRR).

Indonesia's GDP slowed to its slowest pace in six years, growing at 4.67 percent in the second quarter amid concerns that protectionist measures the government has put in place since Jokowi’s inauguration would throttle the economy even more amid the collapse of global commodity prices. June trade data showed that exports fell for the ninth straight month, by 12.7 percent annually, with the energy sector taking the brunt. Oil and gas exports were down 47.4 percent annually compared with a decline of 5 percent in non-oil & gas exports.

The appointment of recognized technocrats to fill top economic, trade and financial positions in the cabinet, and especially his moves to keep Megawati at bay, may begin to dispel those problems. It is a start.