October 24, 2024
JAKARTA – A shortened chain of command in the cabinet is seen to indicate a more hands-on approach to budget management by the new President.
Instead of being placed under the command of the coordinating economic minister, the finance minister now reports directly to the head of state.
President Prabowo Subianto inked two presidential regulations on Monday that serve as the legal foundation for his cabinet. Unlike the usual arrangement, however, the list of institutions overseen by the Office of Coordinating Economic Minister does not include the Finance Ministry.
Coordinating Economic Minister Airlangga Hartarto told reporters on Tuesday that the Finance Ministry was now “directly” under the President, but he refused to elaborate why such an arrangement was put in place.
Finance Ministry spokesman Deni Surjantoro confirmed the structural change on Tuesday.
In the cabinet’s maiden plenary meeting on Wednesday, Prabowo said Indonesian bureaucracy was “notoriously complicated [and] very notoriously slow”, and he repeatedly emphasized the importance of “efficiency” in his speech.
“It’s not that I want to meddle with the work of the ministries; no, I want to help. Where there’s a bottleneck, where there’s hardship, we deal with it immediately,” said Prabowo, a former general who until Sunday served as the defense minister.
On her way to Monday’s plenary meeting, Finance Minister Sri Mulyani Indrawati did not respond to The Jakarta Post’s question about the structural change and walked on without addressing any of the state palace correspondents.
Andry Satrio Nugroho, an economist at the Institute for Development of Economics and Finance (INDEF), said the arrangement indicated that Prabowo would have a more “hands-on” approach to fiscal policy as compared to his predecessor, Joko “Jokowi” Widodo.
“We can see that the President wants full control of the budget, because the programs he promised during the election campaign require big spending. Given the circumstances, the President seems to be uncompromising on the budget,” Andry told the Post on Wednesday.
Andry saw the change in a positive light, noting that the old arrangement translated to more bureaucracy and was prone to political compromise.
“The Finance Ministry is no longer, quote unquote, controlled by the interests of the superior coordinating ministry. This, in my opinion, will surely provide positive sentiment expected by the market,” said Andry.
Read also: Prabowo presents largest cabinet in decades
Economist Intelligence Unit analyst Wen Chong Cheah told the Post on Wednesday that the new cabinet setup was a double-edged sword that could streamline decision-making, but at the risk of political interference that might diminish the autonomy and credibility of the Finance Ministry.
“In a positive scenario, [the setup] will help rapid implementation of fiscal policies aligned with presidential directives, such as during urgent economic reforms or crises. As the Finance Ministry directly reports to the President, it might gain more political clout, enabling it to push through necessary but difficult policies,” said Cheah.
On the other hand, Cheah cautioned, fiscal policies might become more prone to short-term political considerations rather than serving the goal of long-term economic stability.
“This could result in fiscal mismanagement and/or higher debt levels. The worst-case scenario from fiscal profligacy is capital flight if investors lose confidence in the government’s ability to repay debts and/or maintain a healthy budget,” said the analyst.
A setup granting the head of government closer control over fiscal policy was not unique to Indonesia, Cheah pointed out, noting that Malaysia and Singapore had their respective top executive leaders serve simultaneously as the finance minister.
Bank Permata chief economist Josua Pardede’s told the Post on Wednesday that a direct line to the government’s top executive might align fiscal policies and strategies better with the President’s overall economic agenda. He also said the ministry “may have more influence over national policy”.
However, the arrangement could concentrate power, “reducing checks and balances” if not managed properly, and potentially lead to less transparency in financial governance, Josua added.
Sri Mulyani is a popular and respected stateswoman whose reappointment has been well received by both foreign and domestic business organizations, with many pointing to her proven track record of fiscal prudence on the job as well as her international recognition.
Read also: Businesses hope for Sri Mulyani’s return as finance minister
Before her first stint as Indonesia’s finance minister from 2005 to 2010, Sri Mulyani served as the executive director at the International Monetary Fund for two years. That was followed by her work as one of World Bank’s three managing directors, until Jokowi called her back home to become the finance minister again in 2016, which lasted through Jokowi’s second term in office.
Her return to the post under the new administration came as a surprise to some, as Sri Mulyani and then-defense minister Prabowo were reportedly at odds over budgetary issues, which according to some reports prompted her to consider resigning in January.