Indonesia Finance Minister Exit Spurs Markets Volatility, Rupiah Falls

Indonesia’s financial markets have reacted negatively to the sudden removal of Finance Minister Sri Mulyani Indrawati, a respected fiscal disciplinarian, raising concerns about the government’s fiscal and monetary policies under President Prabowo Subianto’s populist agenda. The Jakarta Composite Index dropped nearly 1.8%, the rupiah weakened to its lowest level since May, and sovereign bonds fell amid fears of increased fiscal deficits fueled by costly social programs like free school meals and public housing. Investors are anxious about potential central bank interventions to stabilize the currency and bond markets and are wary of the government’s ability to maintain fiscal discipline while addressing economic hardships. Indrawati’s successor, Purbaya Yudhi Sadewa, has pledged to keep Indonesia fiscally healthy and promote growth, but skepticism remains due to recent protests and political pressures. Analysts warn that Indonesia’s economic growth could slow further if political turmoil and investor confidence issues persist, emphasizing the delicate balance between populist spending and fiscal responsibility. The government faces the challenge of rebalancing expenditures and generating revenue to support priority projects without exceeding the legal fiscal deficit limit.