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Indonesia’s financial markets were shaken after President Prabowo Subianto abruptly removed Finance Minister Sri Mulyani Indrawati, raising fears over the nation’s fiscal stability. Investors have long regarded Mulyani—who served three stints as finance minister—as the anchor of prudent fiscal management in Southeast Asia’s largest economy. Her departure sparked a 1% drop in Indonesian stocks, weaker international bonds, and pressure on the rupiah, which closed at 16,300 per U.S. dollar on Monday and faces further downside.
Analysts warn the move could erode investor confidence as Prabowo pushes forward with costly populist programs, including his flagship free meals initiative targeting over 80 million Indonesians. Critics highlight that Mulyani balanced this program by aggressively cutting spending to protect fiscal sustainability. Concerns now center on whether new finance minister Purbaya Yudhi Sadewa, who has pledged to accelerate growth and support an ambitious 8% economic target, can fund social and defense spending without ballooning deficits.
“Mulyani was the safeguard of prudent fiscal policy,” said Hasnain Malik of Tellimer, adding her exit raises fears of widening budget gaps. Trinh Nguyen of Natixis echoed similar concerns, questioning how Indonesia can finance its welfare commitments without straining fiscal discipline.
Markets are expected to closely watch the rupiah’s performance, with Bank Indonesia likely to intervene to defend the currency. The nation’s foreign reserves, which slipped to $150.7 billion in August, may come under further pressure. According to Aninda Mitra of BNY Investment Institute, investors will demand clarity on fiscal policy direction and reassurance of stability before confidence returns.
The political turmoil and ongoing protests add another layer of uncertainty, intensifying scrutiny of Prabowo’s economic agenda. For global investors, the exit of Sri Mulyani represents not just a personnel change but a test of Indonesia’s fiscal credibility.
