By Chris Brummitt and Rieka Rahadiana
The president, known as Jokowi, revamped his economic team in a cabinet reshuffle on Wednesday as China's currency devaluation spurred further declines in the rupiah. On Friday, he will lay out a fresh plan to revive an economy growing at the slowest pace in over five years when he unveils the 2016 budget and makes his first state of the union address.
A former furniture manufacturer from humble origins, Jokowi took office last October buoyed by investor optimism he would bring effective governance and market-friendly reforms to Southeast Asia's largest nation. Those hopes have been largely undermined by protectionist policies, simmering political tensions and an infrastructure drive that has yet to begin.
After months of pressure from Jokowi's Indonesian Democratic Party of Struggle over the cabinet's performance, Jokowi made six changes, turning to former Bank Indonesia Governor Darmin Nasution for economy minister. Tom Lembong, a Singapore-based private equity investor and adviser to Jokowi, became trade minister. Finance Minister Bambang Brodjonegoro kept his job.
"Jokowi has managed to balance some of his party's interests with the things he wanted to do," said Jakarta-based Douglas Ramage, country head for Indonesia at business advisory Bower Group Asia. "The new minister of trade was a very astute choice to counter a rapidly growing perception of protectionism. Lembong understands, and is committed to, Indonesia's adherence to international trading law, as well as the importance of free and open trade."
The changes failed to soothe markets, already under pressure from the yuan devaluation and the prospect of upcoming U.S. interest rate rises. The rupiah fell 1.4 per cent on Wednesday, the most this year, and the benchmark Jakarta stock index slid 3.1 per cent to the lowest close since February 2014.
Jokowi said the reshuffle was needed to speed up the realisation of stalled infrastructure projects and make the country more attractive to foreign investors.
"It's impossible that our economy will grow only through budget spending, state-owned enterprise spending or private consumption," Jokowi said in an interview with Metro TV broadcast late Wednesday. "We need capital inflows."
Jokowi has often appealed to foreign businesses to invest in Indonesia, but has made little progress in fixing concerns over corruption, red tape and an uncertain legal environment. Foreign direct investment was $US7.4 billion in the three months through June, little changed from a year earlier in dollar terms. Foreign funds have only bought a net $US149.7 million of Indonesian stocks this year.
Government spending, expected to be the main driver of growth given a continuing slump in commodity exports, has been slower than anticipated amid changes in government ministries and bureaucratic inefficiencies.
"The biggest expectation for Jokowi is that he will be able to spend and spend efficiently," said Vaninder Singh, an economist at Royal Bank of Scotland Group in Singapore. "If he can't even spend, we won't even get to see the efficient part."
Ensuring coordination for that will fall to Nasution, a former tax chief with a doctorate in economics from Paris-Sorbonne University in France. He led the central bank between 2010 and 2013, cutting interest rates to a record low to support growth.
Jokowi made Luhut Panjaitan, his chief of staff and a former commando, the coordinating minister for political, legal and security affairs. Another new cabinet member previously in government was Rizal Ramli, a former finance minister, who became the coordinating minister for maritime affairs, a portfolio that covers energy and mining as well as fisheries.
"There is enough in the new cabinet for investors to at least give him the benefit of the doubt," said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp. in Singapore. "The retention of the finance minister should keep expenditure disbursement as on track as possible."