That Jakarta’s stock-market plunge – the main index was down 7% at one point on Tuesday – was attributed to speculation Sri Mulyani would depart wasn’t a promising sign.
She has performed that role ably for much of the past decade, but problems have piled up that would test any cabinet pick: a surprising revenue shortfall, a weakening currency, questions about the central bank’s independence, and a decline in consumer prices.
Sound fiscal policy has been a redeeming quality of recent Indonesian administrations; deficits are restricted by law to 3% of gross domestic product, and officials have taken care to stress prudence. There have, however, been some shocks.
A long-planned hike in the value-added tax was recently gutted, a decision closely followed by a sudden drive to reduce spending. Some belt-tightening is laudable, though the haphazard nature of decrees is worrying. The rupiah is Asia’s worst-performing currency this quarter.
Spending that hasn’t been chopped is for Prabowo’s pet projects, including free school lunches. He wants the economy to grow much faster than the 5% logged over the past decade, and thinks fiscal policy has been too cautious. But this is a global environment less benign than when the former general turned populist took office in October. World growth prospects appear weaker than even two months ago.
In a sweeping overhaul of how powerful state companies are run, Prabowo has created a multibillion-dollar state fund that will steer investment toward his preferred projects and report to him.
This is “an instrument, a development tool that must be able to change the way we manage wealth for the welfare of the people,” Prabowo said in February. The message is that he will determine that welfare.
With so many moving pieces, who can blame markets for panicking that Sri Mulyani might let someone else have a turn?
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That Jakarta’s stock-market plunge – the main index was down 7% at one point on Tuesday – was attributed to speculation Sri Mulyani would depart wasn’t a promising sign.
She has performed that role ably for much of the past decade, but problems have piled up that would test any cabinet pick: a surprising revenue shortfall, a weakening currency, questions about the central bank’s independence, and a decline in consumer prices.
Sound fiscal policy has been a redeeming quality of recent Indonesian administrations; deficits are restricted by law to 3% of gross domestic product, and officials have taken care to stress prudence. There have, however, been some shocks.
A long-planned hike in the value-added tax was recently gutted, a decision closely followed by a sudden drive to reduce spending. Some belt-tightening is laudable, though the haphazard nature of decrees is worrying. The rupiah is Asia’s worst-performing currency this quarter.
Spending that hasn’t been chopped is for Prabowo’s pet projects, including free school lunches. He wants the economy to grow much faster than the 5% logged over the past decade, and thinks fiscal policy has been too cautious. But this is a global environment less benign than when the former general turned populist took office in October. World growth prospects appear weaker than even two months ago.
In a sweeping overhaul of how powerful state companies are run, Prabowo has created a multibillion-dollar state fund that will steer investment toward his preferred projects and report to him.
This is “an instrument, a development tool that must be able to change the way we manage wealth for the welfare of the people,” Prabowo said in February. The message is that he will determine that welfare.
With so many moving pieces, who can blame markets for panicking that Sri Mulyani might let someone else have a turn?