Finance Ministers, others to resign in Indonesia

The political landscape in Indonesia is undergoing significant turbulence as President Joko Widodo’s covert support for presidential candidate Prabowo Subianto fractures his government. The situation has led to the contemplation of resignations by key ministers, including Finance Minister Sri Mulyani Indrawati, Foreign Affairs Minister Retno Marsudi, and Minister of Public Works and Housing Basuki Hadimuljono.

The political discord, driven by Jokowi’s backing of Prabowo, has created unease within the ruling Indonesian Democratic Party of Struggle (PDI-P), as Prabowo belongs to an opposition party campaigning against Jokowi’s party. This backing is seen as unusual, considering the historical rivalry between Jokowi and Prabowo, who were fierce opponents in the 2019 elections.

The rift is particularly evident within the cabinet, where tensions have escalated since Jokowi’s son, Gibran Rakabuming Raka, was appointed as the running mate to Prabowo. This move, following a controversial constitutional court ruling, has intensified discontent among ministers, potentially leading to resignations.

The impact of this political turmoil is reflected in the financial markets, with the Indonesian rupiah experiencing a 0.5% decline, reaching a level unseen since early November against the dollar. The uncertainty surrounding the elections and a rebound in the US dollar have contributed to a 2.5% decline in the rupiah in January, prompting intervention by Bank Indonesia.

Investors are closely monitoring the situation, with concerns raised about the potential backlash on the rupiah and markets if resignations were to occur. While some ministers may consider stepping down, the fluidity of the situation suggests that decisions might not be immediately announced.

Jokowi’s support for Prabowo is seen as a strategic move to secure a successor in the upcoming presidential elections, scheduled for February 14. The elections are critical for the continuity of Jokowi’s policies, including the onshore refining of raw minerals and the construction of a new $34 billion capital city.

In response to the rumours and potential resignations, Jokowi’s office has emphasised unity among ministers until the end of his second and final term in October. However, the divided cabinet and the growing unease among ministers highlight the complexity of the political landscape in Indonesia.

The situation also raises concerns among investors, particularly regarding the potential departure of Finance Minister Sri Mulyani Indrawati, known for her role in stabilising Southeast Asia’s largest economy. The finance minister has reportedly faced pressure to allocate more spending, particularly in the social assistance budget, which some view as beneficial to Prabowo’s campaign.

As Indonesia approaches a crucial electoral period, the political dynamics and their impact on the economy and financial markets remain a key focus for both domestic and international observers.