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Indonesian finance minister's removal unnerves investors, rupiah sinks

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  Published in Business and Finance on Tuesday, September 9th 2025 at 2:25 GMT by reuters.com
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Indonesia’s abrupt Finance Minister exit rattles markets – the rupiah sinks, investors reel

In a move that surprised both domestic and international observers, Indonesian President Joko Widodo announced the removal of his finance minister, Sri Mulyani Indrawati, on Thursday. The decision, which came without prior warning or an official explanation, sparked immediate uncertainty across the capital markets, sending the Indonesian rupiah sharply lower against the U.S. dollar and prompting a swift sell‑off of bonds and equities.

Who is Sri Mulyani, and why is her exit so disruptive?

Indonesian finance minister Sri Mulyani has been a towering figure in the country’s economic reforms. A former World Bank economist, she assumed the cabinet role in 2016, succeeding Basuki Tjahaja Purnama (Ahok). Her tenure has been marked by a focus on fiscal discipline, a drive to reduce the country’s deficit, and an emphasis on transparency in public finances. Under her stewardship, Indonesia has managed to keep inflation near the central bank’s 4 % target and has attracted record levels of foreign direct investment, helping the nation’s GDP grow at about 5 % annually over the past decade.

In August, the ministry had released a comprehensive budget plan that proposed a modest increase in the tax base, a gradual reduction in the deficit from 4.3 % of GDP to below 3 % by 2027, and a continued push toward digitalizing public spending. Analysts had praised these measures as a sign that the administration was willing to tackle structural fiscal challenges head‑on.

The shockwave that followed

The announcement was made during a televised press briefing, where President Widodo said, “We have decided to move forward with a new team in the finance ministry to pursue our agenda more effectively.” No further details were offered. In the immediate aftermath, the rupiah slid 1.8 % against the dollar, trading around 16,200 rupiah per USD—a 4‑month low. The Indonesia Stock Exchange’s LQ45 index dropped 0.9 %, while government bond yields spiked, with the 10‑year yield climbing to 5.8 % from 5.4 % the day before.

In early morning trading, foreign investors dumped around $2 billion of Indonesian equities, a 3‑fold increase over the average daily outflow of the previous month. Analysts noted that the lack of a clear rationale for the minister’s exit had amplified risk‑aversion, causing traders to hedge by selling the local currency and seeking safer assets.

Why the sudden removal?

The Reuters story cites multiple sources close to the administration, suggesting that the decision stemmed from a growing rift between the finance ministry and the central bank over monetary policy. For months, the Bank Indonesia (BI) had signaled a tightening stance, raising the policy rate to 3.75 % in July to curb inflationary pressures that had hovered at 4.6 %. Finance ministry officials, however, had advocated for a more accommodative approach, arguing that higher rates could stifle the fragile recovery from a 2023 slowdown.

An inside source told Reuters that the president had become frustrated with what he described as “persistent policy disagreement” and “inadequate communication” from the ministry. “The finance ministry has not been able to align with the central bank’s strategy, and we cannot afford continued discord,” the source said.

The article also references a prior incident from 2024 in which a senior finance deputy was disciplined for allegedly misreporting debt figures, raising questions about internal accountability. While no formal investigation has been announced, the incident had eroded confidence among some of the ministry’s key partners.

The successor: a former central bank governor

In the same briefing, President Widodo named former Bank Indonesia governor Andi M. Setyawan as the new finance minister. Setyawan, who served as governor from 2015 to 2017, is a respected economist known for his technocratic style and his record of maintaining financial stability during Indonesia’s post‑2008 crisis period. Though he is a figure with a solid background in monetary policy, his appointment has been viewed by some as a strategic move to bring the finance ministry and the central bank into closer alignment.

Setyawan is expected to adopt a more dovish stance on fiscal policy, focusing on stabilizing public finances while ensuring that monetary policy remains responsive to inflation. His first challenge will be to restore confidence among investors and to clarify the government’s fiscal trajectory.

Market reaction to Setyawan’s appointment

While the initial reaction to the minister’s removal was negative, the announcement of Setyawan’s appointment has begun to temper some of the panic. In the final hours of the trading day, the rupiah rallied modestly, falling to 16,050 rupiah per USD. The LQ45 index edged up 0.3 %, and bond yields tightened by 0.1 percentage point, reflecting a gradual reassessment of risk.

Financial analysts in Jakarta say that Setyawan’s background may help to soothe market fears, as he is perceived as someone who can work collaboratively with BI. “We are looking for a leader who can reconcile fiscal and monetary policy,” said Anna Sari, a senior analyst at PT Bank Mandiri. “Setyawan has the credibility to bridge the gap.”

Implications for Indonesia’s fiscal trajectory

The removal of a long‑standing finance minister in the middle of a fiscal reform program could have lasting repercussions. The finance ministry’s budget proposals had already laid out a path for deficit reduction, and the new minister must maintain momentum. However, the abrupt change in leadership raises questions about the continuity of policy and the likelihood of revisions to the fiscal roadmap.

In a recent statement, the Ministry of Finance reiterated that the fiscal targets for 2025 remain unchanged, stating, “The policy framework is intact, and the new minister will continue to advance the agenda.” The statement came amid speculation that the new minister might adopt a more flexible approach, potentially easing the pace of deficit reduction in favor of more immediate growth stimulus.

A broader context: Indonesia’s economic health and political landscape

Indonesia’s economy has faced headwinds in the past year, including a slowdown in consumer spending, rising global commodity prices, and a volatile currency. The rupiah’s recent slide has pushed import costs higher, potentially putting pressure on inflationary expectations. At the same time, the country’s debt-to-GDP ratio has climbed to 33 % as of December 2024, a level that has sparked debate among economists over the sustainability of Indonesia’s debt trajectory.

The political backdrop is equally complex. President Widodo’s administration is facing a tightening window before the 2029 election, and the removal of a high‑profile minister has added to the narrative of internal governmental turbulence. Political analysts argue that the move could be part of a broader strategy to consolidate executive power or to signal a shift toward a more technocratic governance style.

Looking ahead

While the immediate shock to the markets has begun to dissipate, investors remain vigilant. The next few weeks will be critical in determining whether the new finance minister can restore confidence and steer Indonesia’s fiscal policy toward stability. Market watchers are closely monitoring:

• Bank Indonesia’s monetary policy meetings – any signals that BI will adjust its stance could have a knock‑on effect on the rupiah and bond yields.
• Government budget releases – how the ministry’s new leadership frames the fiscal roadmap will be a key gauge of policy direction.
• Investor sentiment surveys – a shift in risk appetite could either dampen the rupiah’s volatility or exacerbate it.

As Indonesia navigates the dual challenges of maintaining fiscal discipline while fostering growth, the sudden removal of a pivotal minister will undoubtedly be a headline of the coming months. In a market that prizes predictability, the hope is that President Widodo’s gamble will pay off by unifying fiscal and monetary policy and by sending a clear signal that Indonesia is committed to a stable economic path.