Citigroup Indonesia Macro Flash: Indonesia Cabinet - A Missed Opportunity?

Indonesia Macro Flash
Indonesia Cabinet – A Missed Opportunity?

 New cabinet looks like a mixed bag — With President Yudhoyono’s strong election mandate, there were great hopes that his 2nd term would significantly transcend his 1st, having capable technocrats dominate key posts and more effectively implement his core policies. Market is particularly keen on seeing material progress in boosting investment climate and infrastructure while safeguarding macro stability. On that scorecard, we think the new cabinet will be seen as slightly disappointing, signaling that consensus-building and political accommodation are still important drivers of cabinet appointments.

 Some capable technocrats in key posts... — On one hand, half (17 out of 34) of the cabinet posts are technocrats, and some key posts are market friendly – Finance Minister Sri Mulyani and Trade Minister Mari Pangestu are credible technocrats; Foreign Minister Marty Natalegawa, Bappenas head Armida Alisjahbana and Gita Irawan Wirjawan as Investment Coordinating Board Chairman also seem suitable for their posts. While the re-appointment of incumbent Public Works Minister Djoko Kirmanto may signal continuity, there is also a lingering question whether the slow progress on public works infrastructure in Yudhoyono’s first term will continue in the second term. A new post, Head of Delivery Unit at the Presidential Office, is occupied by
former Energy Minister and Aceh Reconstruction chief Kuntoro Mangkusubroto, tasked to improve ministries coordination and resolve implementation bottlenecks. He seems to have a strong track record, but his effectiveness in his new role remains to be seen.

 ...but politically-driven appointments in others, including economicallyimportant posts — Perhaps the two most high–profile appointments that have raised “questions” are the appointment of National Awakening Party (PAN) politician Hatta Radjasa as Coordinating Minister for the Economy, and an economist with no particular energy background, Darwin Saleh of Partai Demokrat, to the crucial post of Energy & Mineral Resources Minister. Perhaps Hatta’s appointment could provide political clout in dealing with parliament on economically-important legislation, but it is unclear how well he will work with Finance Minister Sri Mulyani. Despite Golkar’s weaker parliamentary clout in the last elections and smaller number of cabinet posts (4), they still wield influence in key positions, with Golkar members M.S. Hidayat as Minister of Industry and Mustafa Abubakar as State Minister for State Enterprises.

 Market implications – Neutral to negative — The fact that President Yudhoyono still resorts to political accommodation by appointing coalition party members into the cabinet despite his overwhelming majority win is not a surprise – a number of these cabinet names have been floating around prior to the announcement. Nonetheless, market may be somewhat disappointed that except for some key technocrats, cabinet posts may signal “business as usual”—and thus, structural reforms catapulting Indonesia to a higher level of growth may be a slower process than expected. We’ll have to wait and see.