Indonesian President to overhaul Cabinet amid trade fallout

[JAKARTA] Indonesian President Joko Widodo will announce a major overhaul of his Cabinet aimed at firing up Southeast Asia's biggest economy, but will now delay the reshuffle until October.

Under the current plan, which could change by the time it is unveiled, several key ministers are set to be dropped, including State-Owned Enterprise Minister Rini Soemarno, according to a person familiar with the matter who asked not to be identified as discussions were private. Fisheries Minister Susi Pudjiastuti and Energy Minister Ignasius Jonan are also set to miss out on a Cabinet post, while Jokowi, as Widodo is known, is also seeking to cut back the dominance of state-owned enterprises in major projects, the person said.

The reshuffle will be one time only and will be announced in October, the person said, noting the changes are aimed at boosting coordination in a bid to push through reforms and help Indonesia's economic growth expand beyond 5 per cent. Still, much could happen in the coming months as the behind-the-scenes horse trading over Cabinet posts continues - in particular, whether to include parties in political rival Prabowo Subianto's coalition.

While Finance Minister Sri Mulyani Indrawati will stay in her current role, Coordinating Minister for Economic Affairs Darmin Nasution is set to be replaced, the person said, while former central bank governor Agus Martowardojo, former finance minister Chatib Basri and CT Corp chairman Chairul Tanjung are being touted as possible replacements for Mr Nasution.

"The president has not decided on the names of ministers. There is no ministerial list yet. That is the president's prerogative," Jokowi's chief of staff, Moeldoko, who like many Indonesians uses only one name, said by telephone.

The delay in announcing the reshuffle, which had previously been expected to happen as early as June, comes amid simmering tensions between coalition partners over how to carve up Cabinet positions. Meanwhile, spillover from trade tensions as well as waning global demand are damaging Indonesia's economy, with the government having already pared back its projection for economic growth.

Jokowi, who will be sworn in for another five years as president in October, has already flagged plans to double down on an infrastructure drive that was a hallmark of his first term. He is also set to reform the state-owned enterprise sector, overhaul labor laws and make changes to tax levels in a bid to boost exports and investment, the person said.

While state-owned companies will still lead the charge in the government's infrastructure development push, their balance sheets are already stretched which "may limit their ability to be as aggressive as they were in the first term," said Hariyanto Wijaya, head of research at PT Mirae Asset Sekuritas Indonesia.

With the government cutting back its projection for growth for this year to 5.2 per cent from an initial forecast of 5.3 per cent, Jokowi is already facing economic headwinds that threaten to overshadow his second term.

"Jokowi has promised to intensify much-needed structural reforms in his second term and investors would welcome a shake-up of ministers if he brings in people who are willing and able to take tough decisions," said Ben Bland, director of the Southeast Asia Project at the Lowy Institute in Australia.

"Burdensome labor regulations and preferential treatment for state-owned enterprises are two of the main bugbears for foreign companies and domestic private-sector investors," Mr Bland said, noting reform in both areas would be well received.

BLOOMBERG