Indonesia’s currency weakened after Sri Mulyani Indrawati was removed as the nation’s finance minister, adding to concern about the nation’s long-term financial outlook.
The rupiah fell more than 1% to 16,483 per dollar, while the benchmark Jakarta Composite Index of stocks opened lower before erasing losses. Sovereign bonds also dropped. Bank Indonesia is intervening in the market to maintain the currency’s stability, an official said.
Indrawati’s exit ratchets up pressure on Indonesian assets amid concern over populist policies from President Prabowo Subianto, and came just days after the country saw its worst anti-government protests in years. While new finance minister Purbaya Yudhi Sadewa said he will keep Indonesia fiscally healthy, Indrawati enjoyed widespread respect among global investors.
“It’s not entirely what we like” and comes on top of a creep in central-bank statements that suggest less independence in policymaking, said Carl Vermassen, a portfolio manager at Vontobel Asset Management AG. “It’s the sort of events that would motivate to reduce risk.”
The rupiah had already weakened more than 1% against the dollar this year through Monday, the worst-performing currency in Asia after the Indian rupee, due in part to the soft economy and dovish central bank. The benchmark Jakarta Composite Index of stocks had gained 9.7% over the same period, underperforming Asian emerging-market peers.
Concerns earlier this month that Indrawati would resign following the protests have also hit Indonesia’s markets, with overseas investors selling about $845 million of stocks and bonds this month, according to data compiled by Bloomberg.
What Bloomberg Economics Says:
Indrawati’s removal “risks spooking investors just when trust is most needed — with the government and central bank embarking on a renewed burden-sharing arrangement that monetizes part of state spending. That initiative already had put policy on a slippery slope.”
– Tamara Mast Henderson, economist
“We think BI will be focusing on FX stabilization in the near term,” and won’t cut interest rates this month, Helmi Arman, an economist at Citigroup in Jakarta, wrote in a note to clients. “Increased perceived uncertainty could accentuate foreign portfolio investment outflows that have already begun in the week after the social unrest in late August.”
