Indonesia's Cabinet Reshuffle

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Indonesia's Cabinet Reshuffle Economics 28 July 2016 Indonesia's cabinet reshuffle Su Sian Lim Jokowi gets the balance right Economist The Hongkong and Shanghai It's been some months in the making, but President Jokowi yesterday finally Banking Corporation Limited, announced his second cabinet reshuffle in less than two years. Some of the Singapore Branch +65 6658 8783 positive take-aways: for one, it is clear from the realignment that President [email protected] Jokowi's political clout has increased to the extent that he can now appoint reformists such as former finance minister Sri Mulyani; in short, it is a clear show View HSBC Global Research at: of political strength. Second, Sri Mulyani's track record of being tough on tax http://www.research.hsbc.com evaders and corruption improves the chances that the tax amnesty program and other key fiscal reforms (such as the abolition of fuel subsidies) will succeed or be Issuer of report The Hongkong and Shanghai adhered to. Third, post-reshuffle we come away with the general impression that Banking Corporation Limited, the right people have been installed in the right posts. President Jokowi has taken Singapore Branch MCI (P) 094/06/2016 this opportunity to balance political interests, yet the quality of the cabinet is even MCI (P) 085/06/2016 better than before, and we think this bodes well for the reform agenda and the MICA (P) 021/01/2016 country's longer-term prospects. Disclosures & Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure A boost to the reform agenda appendix, and with the Disclaimer, which forms part of it Just when we thought the positive flow of news out of Indonesia was about to peter out, President Jokowi yesterday announced that he had reshuffled thirteen of the 34 posts in his cabinet. As we discussed in a note yesterday, nine were new appointees, while four ministers swapped portfolios (see Table 1 for details). In comments to the press, President Jokowi said that Indonesia faced "heavy challenges" two years into his administration, and that "the problems of poverty, economic gap (and the) interregional gap" needed to be solved "as soon as possible." (Jakarta Globe, 27 July, 2016). Although speculation of a cabinet reshuffle has been swirling for months, the final line-up still unveiled some positive surprises. Notably, Sri Mulyani Indrawati will reprise her role as Finance Minister. She will take over from Bambang Brodjonegoro, who will replace Sofyan Dajlil as the head of the National Development Planning Agency (Bappenas). After having served for five years as finance minister and coordinating minister for the economy under former president Yudhoyono, Sri Mulyani resigned in 2010 to take up a position at the World Bank as its No. 2. By then, she had already won a clutch of accolades globally, including being named Finance Minister of the Year by Euromoney magazine in 2006, Indonesia's most powerful woman by Forbes in 2008 and Asia's Finance Minister of The Year in 2007 and 2008 by Emerging Markets newspaper. Economics Indonesia's cabinet reshuffle 28 July 2016 Among other achievements, her track record of fearlessly tackling corruption in Indonesia - even at the highest levels - and initiating tax reforms make her the ideal appointee at a time when much of the economy's fiscal and growth prospects hang on the success of the tax amnesty program (see Indonesia's tax amnesty: Top five questions, 27 June, 2016). Her appointment also raises the odds that the Jokowi administration will continue to adhere to other key fiscal reforms that have already been announced. For example, where the abolition of fuel subsidies, where the government's commitment to reform may be tested should oil prices start to rise. In addition to Sri Mulyani, various other new appointees will also bring skills and experience that are well-matched to their roles. These include Luhut Pandjaitan as Coordinating Minister for Maritime Affairs, succeeding Rizal Ramli. As the former Coordinating Minister for Political, Legal and Security Affairs, Pandjaitan is recognized as someone who rolls up his sleeves and gets the job done through a combination of hard work and diplomacy (the former general was also an ambassador to Singapore from 1999 to 2000). As the Coordinating Minister for Maritime Affairs, this can-do attitude could help to accelerate Indonesia's development as a 'maritime axis' - a key plank of President Jokowi's long-term economic plan, but for which there is still no detailed blueprint. There will be quite a bit of 'coordinating' to do indeed - there are five prongs to President Jokowi's maritime vision, including embedding a maritime culture, developing marine infrastructure through an inter-island maritime highway, boosting Indonesia's maritime-resource development, placing maritime and border issues at the heart of diplomacy, as well as strengthening maritime security. There's also Thomas Lembong, who will still retain a cabinet-level post as Chairman of the Investment Coordinating Board. In many ways he is the ideal candidate to market Indonesia to the rest of the world - as former trade minister, he is already a familiar face internationally; the eloquent and Harvard-educated Lembong also presents a young, progressive and sophisticated side of Indonesia to foreign investors. In short, broadly speaking the right people appear to have been installed in the right posts, despite the fact that six out of the 13 appointees are politically affiliated either with Jokowi or his allies. This - together with the appointment of the strongly reformist Sri Mulyani - is therefore a clear display of political strength by President Jokowi. He has used the reshuffle to carefully balance political interests, with parties such as Golkar and PAN being rewarded for their switch in allegiance, but without compromising on the quality of the new cabinet (see ASEAN Perspectives: Politics to set the tone, 30 June 2016, for more details on the recent political developments in Indonesia and the region). So while that first cabinet reshuffle back in August 2015 may have not been that exciting, this second reshuffle should definitely make investors sit up and take note. Su Sian Lim, ASEAN Economist 2 Economics Indonesia's cabinet reshuffle 28 July 2016 Table 1. Evolution of Jokowi's 'Working Cabinet' Source: The Jakarta Globe, Forbes 3 Economics Indonesia's cabinet reshuffle 28 July 2016 Table 1: Evolution of Jokowi's 'Working Cabinet' (continued) Source: The Jakarta Globe, Forbes 4 Economics Indonesia's cabinet reshuffle 28 July 2016 Disclosure appendix Analyst certification The following analyst(s), who is(are) primarily responsible for this document, certifies(y) that the opinion(s), views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Su Sian Lim This document has been prepared and is being distributed by the Research Department of HSBC and is intended solely for the clients of HSBC and is not for publication to other persons, whether through the press or by other means. This document does not provide individually tailored investment advice and should not be construed as an offer or the solicitation of an offer to buy or sell any securities or to participate in any trading strategy. The information contained within this document is believed to be reliable but we do not guarantee its completeness or accuracy. Any opinions expressed herein are subject to change without notice. HSBC may hold a position in, buy or sell on a principal basis or act as a market maker in any financial instrument discussed herein. HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (including derivatives) of companies covered in HSBC Research on a principal or agency basis. Analyst(s) are paid in part by reference to the profitability of HSBC which includes investment banking revenues. HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Chinese Wall procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner. Additional disclosures 1 This report is dated as at 28 July 2016. 2 All market data included in this report are dated as at close 28 July 2016, unless a different date and/or a specific time of day is indicated in the report. 3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner. 4 You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument, and/or (iii) measuring the performance of a financial instrument.
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