Indonesia replaces respected finance minister with economist promising rapid growth

By Stefanno Sulaiman and Gayatri Suroyo

Indonesia's president on Monday replaced well-regarded finance minister Sri Mulyani Indrawati with an economist who has promised accelerated growth, amid fears of an economic slowdown in Southeast Asia's largest economy.

The exit of longtime minister Sri Mulyani, known for her cautious handling of the economy through various crises, comes less than a year since President Prabowo Subianto took power, and at a time of uncertainty over the fiscal management of the new government.

Sri Mulyani's departure was announced shortly before Prabowo swore in Purbaya Yudhi Sadewa as her replacement.

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Purbaya told reporters the president's target of 8% economic growth was "not impossible" and that he would find ways to quickly boost the economy and push for more involvement by both the private sector and the government.

He stressed that there was no need for new taxes.

Asked about Sri Mulyani, State secretariat minister Prasetyo Hadi said she "neither resigned nor was she removed".

"The president, as head of state and government... has a prerogative. And after some evaluation, he decided on a formation change," Hadi said, without elaborating.

Sri Mulyani's exit also comes as Prabowo seeks to fend off the biggest challenge of his presidency so far, with widespread protests and unrest that have raged for two weeks and have included calls for a fairer taxation system.

Purbaya was head of the Indonesia Deposit Insurance Corporation since 2020 and served previously in various roles at several ministries, including deputy minister at the maritime and investment ministry.

In an August 20 speech, Purbaya highlighted the importance of equitable development for social justice and recalled the economic thinking of Prabowo's father, Soemitro Djojohadikoesoemo, who was an economist and minister under Indonesia's late authoritarian ruler Suharto.

"One of the keys to creating economic stability is having a sustainable programme that directly reaches the community," Purbaya said, adding that Prabowo had started to implement this strategy.

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Prabowo's flagship spending programme has been the ambitious - and expensive - free meals programme that seeks to provide meals to over 80 million Indonesians. The programme has struggled in its first year.

Aside from finding the fiscal space for the programme in Indonesia's already tight budget, logistics has also been a problem.

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Sri Mulyani was one of Indonesia's longest-serving finance ministers and had worked under three presidents, first taking the job in 2005. She left the post in 2010, before being reappointed in 2016.

She won plaudits for reforming the taxation system and for her role in steering the G20 economy through multiple challenges, including the pandemic and the global financial crisis.

The main stock index fell on the news, erasing earlier gains to trade 1.3% down. The rupiah was little changed after the announcement, having been up around 0.7% against the dollar during the day.

Indonesia's international bonds fell, with the 2045 bond trading down 0.33 cents to bid at 97.58 cents on the dollar - more than wiping out earlier gains of the same magnitude, Tradeweb data showed.

The protests in Indonesia, initially triggered by fury over big allowances for legislators, have aired a wide range of grievances including over the government's budget allocations and spending.

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As the face of the administration's finances, Sri Mulyani was among prominent officials singled out and, in late August, looters broke into her home.

Purbaya, who has master's and doctoral degrees in economics from Purdue University and also served as chief executive of state-owned brokerage Danareksa Securities, downplayed the impact of the protests.

"I will create economic growth of 6% to 7% - that will (make protesters) disappear automatically," he said, adding, "they will be busy looking for work and eating well, rather than protesting."

Fadhil Hasan, economist at the Institute for Development of Economics and Finance think tank, argued that Purbaya is a good economist but did not have the experience to directly manage fiscal policy and the economy at large, making him "not the best choice".