The sudden removal of Indonesia’s influential finance minister, Sri Mulyani Indrawati, has shocked financial markets and raised concerns among investors about the country’s fiscal stability. Sri Mulyani, one of Indonesia’s most experienced and longest-serving finance ministers across three different terms, has been a key figure in maintaining the nation’s fiscal credibility. Her departure has sparked fears that the hard-won fiscal discipline could weaken under President Prabowo Subianto’s populist spending plans.
Sri Mulyani’s reputation for careful economic management has partly bolstered investors’ confidence in Indonesia’s economy. Her absence was quickly noticed in the markets, with the rupiah dropping more than 1% on Tuesday and the Jakarta stock market falling 1.6%, its largest daily drop since June. In response, the central bank intervened to support the rupiah, which was last trading at 16,488 per U.S dollar.
Industry experts and strategists expressed concern about the implications of her departure. Hasnain Malik, an emerging markets strategist, remarked that Sri Mulyani’s role as a safeguard of disciplined fiscal policy was crucial. Her exit raises anxiety over potential widening deficits, especially under President Prabowo’s leadership, which faces widespread protests and unrest. These protests, demanding a fairer taxation system and better public services, are testing the political stability of Indonesia.
The new finance minister, Purbaya Yudhi Sadewa, promises to accelerate growth and boost economic activity. He asserts that Indonesia remains committed to fiscal discipline. Still, analysts are wary of a shift towards more aggressive deficits to fund the President’s priorities, including a flagship free meals program for over 80 million Indonesians.
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Market observers watch how the government balances its 8% growth target with fiscal sustainability, amid questions on financing increased defence and social spending without worsening the deficit. Indonesia’s bonds and reserves remain resilient, with $150.7 billion in reserves at August’s end, enough to defend the currency. However, policy uncertainties may affect investor confidence. The political and economic landscape is delicate; the government aims to grow and reform whi
