Jokowi’s cabinet reshuffle: implications for the economy

President Joko Widodo installing his new ministers at the State Palace on 28 July. Photo by Jay for the Cabinet Secretary.
President Joko Widodo installing his new ministers at the State Palace on 27 July. Photo by Jay/Cabinet Secretary.

 

President Joko Widodo reshuffled his cabinet on 27 July, changing 13 portfolios and inducting nine new members. Five departed, and four moved laterally, making room for a representative each from Golkar Party and the National Mandate Party (PAN), while all existing parties – save one – kept their total number of seats.

 

The reshuffle came unexpectedly after circulation of cabinet lists for many months. Gossip in Jakarta spread relentlessly as the president and his advisors watched and waited.

 

This shows Jokowi’s growing knack for allowing fractious and unseemly political jockeying to burn itself out well in advance of his overdue pronouncements. When successful, the tactic creates outward instability but also protects a president increasingly accomplished at giving all interests something but no one everything.

 

Much of the wash-up focused on variations of this theme, emphasising Jokowi’s continued reliance on transactional politics to survive an oligarchic system, or preparation for the 2019 election by striking political deals and getting policy results out of specific portfolios.

 

Burhanuddin Muhtadi noted Jokowi has mostly played it safe, moving at a time of strong public approval to bed down new partners while also placating an unwieldy coalition through unchanged levels of representation. For others, Jokowi is “in charge”, keeping his coalition partners guessing.

 

All these accounts seem plausible enough, and considering the low bar set by Jokowi’s first cabinet, it is clear he has become more politically adept. He has also rebuilt his standing with voters and become more effective at using messaging to manage the financial press and upper class.  Although members of his government admit rolling economic reform packages have not attracted investment, the last 18 months have seen much enthusiastic discussion of the “reform agenda” and “big bang” reforms.

 

This analysis falls down, however, not only because of its reliance on slogans but especially because of its conflation of Jokowi’s late-blooming aptitude for managing the political sandpit with economic and policy nous.

 

Instead of “fortifying” or “re-energising” the economic agenda, the reconfiguration of the economic team reflects a mostly shabby effort to manage political parties while keeping the plates spinning for Indonesia’s tycoon-driven economy. The reshuffle might be a political success but it should not be assumed the gloss extends to the economy.

 

The return of World Bank Managing Director Sri Mulyani Indrawati as minister of finance was rightly the headline appointment. It has been lauded for bringing “macro-stability” and bolstering investor confidence.

 

But is “macro-stability” really the most pressing issue for an economy with 4-5 per cent GDP growth, low external debt, and a deficit under 3 per cent of GDP? Had Sri Mulyani’s predecessor, fellow economist Bambang Brodjonegoro, presided over fiscal irresponsibility or wild bouts of inflation? Hardly.

 

Instead, the mentality is a holdover from the 2000s, when Indonesia had to demonstrate – through the labours of Sri Mulyani and fellow economists like Mari Elka Pangestu – that it could be fiscally responsible and rebuild its financial system. Concerns rightfully remain about revenues, but Indonesia is hardly a macroeconomic basket case and has repeatedly weathered external shocks to continue with strong, if not spectacular, growth.

 

Sri Mulyani won plaudits during her previous stint as minister for bureaucratic reform and a long line of courageous and principled stands. She pursued delinquent taxpayers (including in the coal sector, perhaps sealing her fate) but the hospital handpass of the tax amnesty program will hamper a return performance. It also underscores the importance of separating the political and economic and not branding a case of political sausage-making an automatic win on policy.

 

Sri Mulyani has acknowledged tax investigations will stop during the amnesty, the second in less than 10 years after the 2008 “Sunset Policy” fizzled with returns of a mere US$500 million and no enduring impact on the tax ratio. The tax amnesty has already been celebrated as a boon for the property sector, an industry with a history of close state support and enduring links between developers and senior politicians. Further, if Jokowi’s signature economic policy of 2016 does not work – Bank Indonesia estimated about a third of the Ministry of Finance’s claimed US$150 billion will return home – Sri Mulyani will be exposed. This will especially be the case once she has to turn up the heat on Indonesia’s notoriously tax-allergic elites.

 

Jokowi is already soft-selling the program’s progress to date, and the revised state budget – passed immediately after the amnesty – has been further trimmed in anticipation of weak returns ahead of a spin campaign about growth needing a “credible” budget.

 

Ultimately the appointment does no harm, replacing an underperformer with an experienced and internationally celebrated minister who will guard, insofar as it is within her brief, Indonesia’s hard-won macro-stability. Sri Mulyani has already announced improving the budget as a priority, but this of course requires cross-institutional efforts, given the large share of the budget spent by local governments accountable to the Indonesian Democratic Party of Struggle (PDI-P)-managed Home Affairs Ministry.

 

Unfortunately, the most pressing challenges – like improving Indonesia’s competitiveness, building power plants, or reducing the cost of staple goods – will require input from other parts of the administration.

 

This brings us to the other appointments, which are less than inspiring. Minister of Trade Thomas Lembong, who injected verve into the trade portfolio not seen since Pangestu, was packed off to the Investment Coordination Board (BKPM) and replaced with a real estate developer and ex-deputy treasurer of Golkar, now in the Nasdem party. Lembong made progress on one of the great Indonesian political footballs, cattle imports, pushing through extra quotas for both state companies and private importers.

 

He also somehow brought trade agreements back from the wilderness, restarting Indonesia-Australia Comprehensive Economic Partnership Agreement negotiations and getting Jokowi to express support for the Trans Pacific Partnership. Lembong, with a background in private equity, will undoubtedly bring useful skills to BKPM, but it is wrong to present his transfer as an upgrade for economic policy. He now occupies a non-cabinet position devoid of real powers beyond what line ministries choose to share with it.

 

As for energy policy, Indonesia is facing an emerging energy crisis, a brewing policy failure of epic proportions in the 35,000 MW power plant program. There are also looming negotiations with major investors over direct investments worth many tens of billions of dollars.

 

In this context, Sudirman Said, long at the top of the list of ministers-at-risk due to emotional outbursts and inability to avoid public scraps with fellow ministers, was replaced with Archandra Tahar, an unknown US-based oil and gas engineer with no government or bureaucratic experience.

 

Said, although a headache, was the cleanest energy minister in some time, and he backed efforts to supplant political and ideological infighting with evidence-based policy, for example, in the Masela decision.

 

Tahar, by way of contrast, has rolled out bland priorities such as using resources for the people, human resources development, and deploying more technology. Unfortunately, because the government bears contractors’ costs, technology deployed without sound cost-benefit analysis will simply reduce the government’s already dwindling net share of oil and gas production.

 

Although not purely economic, a final point to address is the confusion regarding Luhut Panjaitan’s move from the Coordinating Politics, Law, and Security Ministry to the Coordinating Maritime Ministry. Some labelled it a “demotion” or a rebuke for the president’s business partner and ally. This is wide of the mark.

 

Coordinating ministries may sound power-laden, but actually they are only as important as the minister’s relationship with the president. Otherwise they are largely powerless posts. In the Soeharto years they were a soft landing for ministers past their prime. Many may recall the Yudhoyono years for foregrounding a coordinating ministry on the front foot, but this was about the relationship between the president and Minister Djoko Suyanto, a confidant of the president since their days in the military academy.

 

In fact, Luhut moves sideways to take the helm of one President Jokowi’s most important non-domestic policy areas. By reason of the 2014 reorganisation of the cabinet, he also inherits oversight of the Energy and Mineral Resources Ministry – headed by the exceptionally green Tahar – at a time when Indonesia is renegotiating the largest resource contracts in the country.

 

Ultimately, beyond demonstrating Jokowi’s political maturation, the reshuffle offers little for economic change. Sri Mulyani’s return is an undoubted plus, but it comes at a time when the government has limited her ability to move on tax delinquency by shackling itself – in exchange for political support – to a questionable tax amnesty policy. Otherwise, Indonesia’s fiscal discipline and macro-stability has hardly been the problem of recent years.

 

It is also important to remember Sri Mulyani does not resonate with local progressives, who see her as a harbinger of “neoliberalism”. Her rock star status is confined to a small group of intellectual elites, western observers, and businesspeople.

 

The demotion of Lembong and the removal of Said also do not bode well for strong economic policymaking. President Jokowi is becoming a more effective politician, but as Vedi Hadiz argued regarding his time in Solo, Jokowi will continue to barter support for progress on his interests with an implicit commitment to avoid structural economic issues.