Indonesian currency, stocks fall after finance minister’s exit

The rupiah has weakened 2.3% against the US dollar this year, the worst-performing currency in Asia after the Indian rupee

Indonesia’s currency weakened and stocks fell after Sri Mulyani Indrawati was removed as finance minister, adding to concern about the nation’s long-term financial outlook.

The rupiah fell 1.1 per cent to 16,482 per US dollar, while the benchmark Jakarta Composite Index of stocks slipped 1.3 per cent. Sovereign bonds also dropped. Bank Indonesia (BI) is intervening in the market to maintain the currency’s stability, an official said.

Indrawati’s exit ratchets up pressure on Indonesian assets amid concern over populist policies from President Prabowo Subianto, and came just days after the country saw its worst anti-government protests in years. While new finance minister Purbaya Yudhi Sadewa said that he will keep Indonesia fiscally healthy, Indrawati enjoyed widespread respect among global investors.

“It’s not entirely what we like”, and comes on top of a creep in central-bank statements that suggest less independence in policymaking, said Carl Vermassen, a portfolio manager at Vontobel Asset Management. “It’s the sort of events that would motivate to reduce risk.”

The rupiah has weakened 2.3 per cent against the US dollar this year, the worst-performing currency in Asia after the Indian rupee. The benchmark Jakarta Composite Index of stocks has still gained 9.1 per cent over the same period, though it has underperformed its Asian emerging-market peers.

Stocks were initially helped by “local support flows kicking in quite early”, said Tareck Horchani, head of prime brokerage dealing at Maybank Securities in Singapore. “Let’s see how the session evolves, the initial shock seems cushioned for now, but broader sentiment may remain fragile in the coming days.”

Concerns earlier this month that Indrawati would resign following the protests have also hit Indonesia’s markets, with overseas investors selling about US$845 million of stocks and bonds this month, according to data compiled by Bloomberg.

The central bank was stabilising the rupiah by intervening in the domestic currency and offshore forwards markets and through government bonds, Bank Indonesia executive director Erwin Hutapea said. BI will continue to be in the market to maintain exchange rate stability and adequate rupiah liquidity, he said.

“We think BI will be focusing on FX stabilisation in the near term,” and won’t cut interest rates this month, Helmi Arman, an economist at Citigroup in Jakarta, wrote in a note to clients. “Increased perceived uncertainty could accentuate foreign portfolio investment outflows that have already begun in the week after the social unrest in late August.” BLOOMBERG