Jokowi Cabinet Shows Cracks With Finance Chief Weighing Exit

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(Bloomberg) -- Indonesian President Joko Widodo’s behind-the-scenes backing of a presidential candidate is fracturing his government, with several ministers weighing resignation.

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Among them is Finance Minister Sri Mulyani Indrawati, who has been integral in steadying Southeast Asia’s largest economy, according to people who asked not to be named discussing sensitive information. Others who are considering leaving their posts include Foreign Affairs Minister Retno Marsudi and Minister of Public Works and Housing Basuki Hadimuljono, the people said.

The situation is very fluid and the ministers could decide to stay, the people said. Any resignations may not be announced immediately out of concern of the potential backlash to the rupiah and markets, they said.

The Indonesian rupiah extended its loss to 0.5% at 10:33 a.m. local time, falling to a level unseen since early November against the dollar. The currency has slumped 2.5% in January, headed for the worst month since October, amid uncertainty with the elections and a rebound in the greenback. That has prompted Bank Indonesia’s intervention in the FX spot, forwards and bond markets, Director Edi Susianto said.

The cabinet rift casts a spotlight on Jokowi who is seen as maneuvering to secure a successor in the upcoming presidential elections.

His behind-the-scenes backing of Prabowo Subianto is unusual given that the ex-general belongs to an opposition party, and is campaigning for a coalition opposed to Jokowi’s own party. Prabowo is currently the defense minister and was appointed to the post by Jokowi as an act of reconciliation after the two men fiercely campaigned against each other in the 2019 elections.

Final Term

Jokowi’s support for Prabowo has created unease among the ministers from his Indonesian Democratic Party of Struggle or PDI-P. Tensions have been brewing ever since Jokowi’s eldest son, Gibran Rakabuming Raka, was made the running mate to the defense minister following a controversial constitutional court ruling, the people said.

Some 204 million Indonesians will elect their next leader on Feb. 14. It is unusual for ministers to resign ahead of the end of the current administration’s term in October, when Jokowi will wrap up his second and final term.

At stake for Jokowi is the continuation of his policies that include refining raw minerals onshore and the construction of a $34 billion new capital city, which he argued is necessary for Indonesia to achieve 7% economic growth and become a high-income status country by 2045.

In response to questions from Bloomberg News, Presidential Special Staff Coordinator Ari Dwipayana pointed to an earlier statement that said all ministers remain united and committed in supporting the president until the end of his term. The foreign ministry’s spokesman said Marsudi is focused on ensuring Indonesia’s leadership in global issues, while representatives for Hadimuljono and Prabowo didn’t immediately respond to requests for comment.

Indrawati told reporters that she’s focused on her work when rumors of her resignation picked up pace last week. But in one recent meeting with her senior officers, she is already focused on safeguarding the ministry beyond her term. Indrawati isn’t from the PDI-P party.

“Particularly in a time of potential political flux heading into the elections, this isn’t great news for investors,” says Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore. “Sri Mulyani has a lot of allure for markets - she’s a very prominent figure and there’s a factor of familiarity and comfort that she’s a steady pair of hands,” he said.

The finance minister has come under pressure from both Jokowi and Prabowo to allocate and accelerate more spending — especially the social assistance budget — that’s seen by many as beneficial to the defense minister’s campaign, the people said. At a Jan. 20 meeting with top ministry officials in Bogor, about an hour’s drive from the capital Jakarta, she emphasized the need for officers to protect the ministry’s budget.

Indrawati has asked ministries to adjust their spending through a mechanism called “automatic adjustment” this year, which would limit any additional spending by ministries. This was reported by local news outlet Tempo earlier this week.

Divided Cabinet

Jokowi’s vast volunteer network had started backing Prabowo as early as October and he has held meetings with the ex-general numerous times since late 2022, the latest of which was a private dinner on Jan. 5. Prabowo is leading opinion polls by a wide margin over the other two contenders.

Jokowi’s backing of Prabowo didn’t sit well with some ministers from the ruling PDI-P, people familiar said. That’s because Jokowi and Gibran’s support for Prabowo runs contrary to the stance of the party, which is backing former Central Java Governor Ganjar Pranowo, the people said. Ganjar was once the president’s preferred successor before they fell out.

The cabinet is now divided based on their political allegiance, the people said. Ministers who don’t support Prabowo are turning against the president due to his stance, while others are growing concerned over how Jokowi’s attempt to extend his influence could threaten democracy, the people said.

Democratic Rights

Jokowi himself has asserted his right to support his favored successor. “That’s democratic rights, everyone’s political rights. Every minister is the same. The president is allowed to campaign, allowed to take sides,” he said at a Wednesday ceremony to hand over an airforce aircraft. He was accompanied by Prabowo.

“But most importantly, when campaigning, you cannot use state facilities. We are public officials, as well as political officials. This is not allowed,” he added.

--With assistance from Soraya Permatasari, Claire Jiao and Ruth Carson.

(Updates with rupiah move, central bank intervention in fourth paragraph.)

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