Rizal Ramli (third from right) after he was sworn in as a new minister at the State Palace in August 2015. (Antara Photo/Yudhi Mahatma)

Cabinet Reshuffle Brings Hope, but Markets Remain Cautious


AUGUST 12, 2015

Jakarta. Wednesday's cabinet reshuffle by President Joko Widodo, which saw two experienced professionals being placed into economic posts, provides hope that Indonesia can navigate the challenges arising from the slow growth environment, but most experts and the business community remain cautious over the actual impact of the move.

Joko, accompanied by Vice President Jusuf Kalla, announced the administration has dropped five ministers and reassigned one, in a brief but long-awaited cabinet reshuffle, with the aim of addressing the administration’s widely panned performance on the economic front.

The most-applauded announcement was the appointment of Darmin Nasution, a senior Finance Ministry technocrat and former Bank Indonesia governor as the coordinating minister for economic affairs, replacing Sofyan Djalil. Sofyan was moved to the ministry for national development planning, ousting Andrinof Chaniago.

In another unexpected move, Joko’s administration appointed Thomas Lembong, a Harvard-educated financial expert as trade minister, kicking out Rachmat Gobel, a veteran businessman.

The news of the cabinet reshuffle, however, was unable to lift the country’s main stock index, which fell 3.1 percent to 4,479.49 on Wednesday with all sectoral indices entering the red zone. Analysts said the index was mostly affected by the devaluation of the yuan.

Foreign investors contributed 42 percent of the trading activity, reporting a net sell of Rp 764 billion. Financial stocks were among the main victims, led by state lender Bank Rakyat Indonesia's fall of 4.4 percent to 9,700.

Yield on the government’s ten-year bonds rose to 8.8517 percent from 8.6135 percent on the day before, the Indonesia Bond Pricing Agency (IBPA) reported.

Market players relieved

The announcement was a relief for market players, said Wellian Wiranto, an economist from OCBC Bank in Singapore.

“Most crucially for market watchers, the coordinating minister for economic affairs is now going to be Darmin Nasution, replacing Sofyan Djalil who is going to be in charge of development planning instead,” said Wellian.

“Darmin brings with him a heft of experience across both monetary and fiscal policies, given his time as the governor of Bank Indonesia from 2009 to 2013, and a career in the Finance Ministry including a stint as the director-general of tax policy under then-Minister Sri Mulyani.”

He said there is some hope that the experienced technocrat will “have a better chance at coordinating economic policies among the myriad of ministries and agencies, which has been largely lacking thus far.”

Joko retained Bambang Brodjonegoro as the finance minister, which was applauded by Wellian, as this will minimize possibility that a new minister would mess up a planned government spending boost, which is supposed to stimulate economic growth.

“Should there be too many changes in the cabinet, government spending disbursement -- which has taken longer than usual to get into gears -- may take another untimely pause,” Wellian said.

“While some inadvertent delays will still happen for the six or so ministries with new bosses, at least the ministry in charge of disbursing the sum in aggregate can largely proceed as before,” the economist said.

Another notable change is at the Trade Ministry, where Rachmat Gobel has just lost his job to Thomas Lembong, a former investment banker and chief executive of Singapore-based Quvat capital, which manages $500 million in investments, mostly in Indonesia.

“There had been some concerns that, under his purview [Rachmat Gobel], the ministry had pursued a drastic drop in cattle import quotas, which resulted in a sudden uptick in beef prices -- so much so that meat sellers have gone on strike and stalls selling meatballs have shuttered,” Wellian of OCBC said.

Rachmat, the patron of Gobel Group, a conglomerate with diversified business from electronics, hospitality, services, trading and manufacturing industry, has mired himself in controversy after controversy, including barring imports of used clothing because he claimed they could spread HIV.

Most recently, his decision to slash cattle imports led to beef prices surging, forcing the government to backtrack and increase imports.

Thomas is a Harvard graduate and has spent some time in the Indonesian Bank Restructuring Agency, known as BPPN, in the aftermath of the 1998 financial crisis and Farindo Investment before setting up his own private equity firm.

James Riady, chief executive at the Lippo Group, applauded the appointment, labeling Thomas as a “scholar in depth of thinking and integrity of intentions and character.”

He also said Thomas, as an investment expert, knows the market very well and has a global mindset and the right connections.

“A great choice,” James said.

Other new ministers include Rizal Ramli, a former chief economics minister under the presidency of Abdurrahman Wahid in the years 2000-01, who ousted Indroyono Soesilo in the post of the the coordinating minister for maritime affairs.

Rizal, known as an outspoken critic, drew controversy during the term of president Susilo Bambang Yudhoyono, when he was nearly sent to prison for allegedly provoking demonstrations over the administration’s decision to raise the subsidized fuel price.

Even during the term of Joko-Kalla, he often criticized the government’s performance. He was once quoted as saying the two were “not creative” in finding solutions to the problem of fuel subsidies.

“Rizal Ramli’s appointment in maritime affairs is a bit odd,” said Sebastian Tobing, head of research at Trimegah Securities, in an email to Globe Asia on Wednesday. But he added that  overall, the market was “neutral on the new ministers.”

But he said he believes foreign investors, who have lost trust in the government, “prefer to see results."

Awaiting decisiveness

Joko, Indonesia’s seventh president, is different to any of his predecessors as he started from a humble man, who wasn’t linked to any elite politics or military background. High hopes from his supporters have accompanied his meteoric rise from furniture businessman to Jakarta governor and now the president of the third-largest democracy in the world.

He was expected to cut red tape, root out corruption and improve the people’s welfare. But after ten months in office,the people have seen very little of that.

Joko has made some efforts to inaugurate major energy and infrastructure projects, giving some hope the economy is going in the right direction, but most expect this to be a lost year.

“At this time, financial conditions deteriorating and challenged growth mean that markets will probably look forward to fairly decisive policy action rather than be satisfied with looking at the backgrounds [of new ministers] or planned pronouncements,” said Aditya Srinath, equity research analyst at JP Morgan Securities Indonesia in an email to Globe Asia.

Wientoro Prasetyo, president director at Lautandhana Securindo, said the reshuffle was supposed to be a long-awaited catalyst for the market, “but in the middle of everything that’s going on globally, it has diminished in relevance.”

“If the reshuffle is really good, it may make a change, but I don’t think it will reverse the direction of the market [immediately].”


Meanwhile, the restructuring of other key posts is still considered to be strongly influenced by political parties backing Joko during the presidential race, although a stronger effort to build a more solid political base was also noticable.

The key post of cabinet secretary, essentially the president’s closest adviser, went to Pramono Anung, a politician from Joko’s Indonesian Democratic Party of Struggle (PDI-P), which has been openly hostile to the previous cabinet secretary, Andi Widjojanto, who was widely seen as shielding the president from the influence of PDI-P chairwoman Megawati Soekarnoputri.

Tedjo Edhy Purdijatno has been replaced as coordinating minister for political, legal and security affairs by Luhut Pandjaitan, the president’s chief of staff. Tedjo was always widely seen as a political appointee, given the post as a concession by Joko to Tedjo’s National Democrat Party (NasDem).

Present at the ceremony on Wednesday were Megawati, House of Representatives Speaker Setya Novanto and NasDem chairman Surya Paloh.

Puan Maharani, Megawati’s daughter, was the only coordinating minister not replaced on Wednesday. Puan remains the country’s chief welfare minister.

Bahlil Lahadalia, chairman of the Indonesian Young Entrepreneurs Association (Hipmi), said in a statement on Wednesday that the economy really needs the trickle down effects from the government spending and higher investment.

Indonesia saw its economy expand at 4.71 percent year-on-year in the second quarter of this year, the slowest pace since 2009, amid slow exports and sluggish government spending. The pace was slower than the first quarter growth of 5.14 percent.

Bahlil said Indonesia was resilient to the 2008 crisis thanks to the strong household spending, but unfortunately this time consumer spending is hurt as “purchasing power has weakened.”

Wellian of OCBC also commented on Luhut, saying that “it was a big promotion for the former Golkar [Party] powerbroker who had close business ties before Jokowi entered mayoral politics in Solo and has acted as a point guard on the political front since he assumed presidency, helping to counter pressure from his own PDI-P party.”

“To be sure, while Luhut’s elevation may be seen as a way for Jokowi to build up his own power base, the president continues to have to pander to his party patrons for now, from the look of things,” he said.

Wellian pointed to some appointments, including the pick of PDI-P stalwart Pramono Anung for the cabinet secretary post, and that of Rizal Ramli, who is known to have been close to PDI-P chief Megawati and her late husband.

“All in all, this element of the cabinet reshuffle probably tells the story of a president who is not yet fully comfortable with his political base, but is nonetheless trying to make sure it does not get chipped away too much while he focuses on trying to deliver a turnaround in economic growth,” Wellian said.

“It is always going to be a gambit to change crews, and especially so when you see more and more dark clouds rolling on the horizon -- with China’s too many one-off devaluations being just one of them. Now, it will be up to Jokowi to provide the guidance for his new(ish) team to best prepare the ship in case the storm does hit,” he said.

“There are only so many times one can reshuffle his cabinet in a five-year presidency. For Indonesia’s sake, please do make this one count.”