Indonesia's Financial Turmoil: Rupiah Plummets After Finance Minister's Shock Ouster

JAKARTA – A seismic shift rattled Indonesia's financial landscape today as the rupiah plunged and the Jakarta stock market faltered, following President Megawati Sukarnoputri's surprising decision to oust her widely respected Finance Minister, Boediono. The move, coming unexpectedly, has sent shockwaves through investor confidence, raising serious questions about the nation's economic stability and commitment to crucial reforms.

The impact was immediate and stark.

In late afternoon trading, the Indonesian rupiah depreciated sharply, plummeting from 8,920 to 9,100 against the US dollar. Simultaneously, the Jakarta Stock Exchange (JSX) composite index took a significant hit, shedding 3.3 percent to close at 460.975 points. Money dealers and analysts alike pointed to Boediono's sudden departure as the primary catalyst for this market turmoil.

Boediono was not just another cabinet minister; he was a pivotal figure, a beacon of stability and reform in Indonesia's economic management.

Known for his close collaboration with the International Monetary Fund (IMF) and his unwavering dedication to structural reforms, he was considered a crucial anchor for investor confidence. His removal is, therefore, seen as a significant step backward for Indonesia's standing in the international financial community.

Economists like Song Seng Wun from Kim Eng Securities in Singapore articulated the pervasive sentiment: "It's a step backward for Indonesia in terms of investor confidence." The prevailing concern now among market participants is the potential for a wavering commitment to economic reform programs, especially with parliamentary and presidential elections looming in the coming year.

The political calculations behind the dismissal are, for many, overshadowing the economic imperative.

The timing of Boediono's ouster adds another layer of intrigue. It occurred abruptly after he returned from critical meetings with the IMF and World Bank in Dubai, suggesting a swift and decisive political manoeuvre.

While his office remained silent, Chief Economic Minister Dorodjatun Kuntjorojakti confirmed the dismissal, announcing Budihardjo Sutardjo, a former head of state-owned Bank Mandiri, as his replacement. Kuntjorojakti explicitly cited "political reasons" for President Megawati's decision.

Speculation abounds regarding these "political reasons." With the 2004 elections on the horizon, some analysts suggest President Megawati might be consolidating power, aiming to replace ministers perceived as too independent or those who disagree with her on critical policy decisions, such as Boediono's push for unpopular but necessary cuts in fuel subsidies.

This move could signal a shift away from market-friendly policies, creating an atmosphere of uncertainty just when stable economic leadership is most needed.

A foreign exchange dealer succinctly captured the market's reaction, stating, "The market just got spooked. It's too fast and too sudden." Many had expected Boediono to complete his term, making his unexpected removal a significant disruption.

While the rupiah had already shown some vulnerability to global factors recently, his dismissal undeniably exacerbated the currency's decline, plunging Indonesia into an immediate test of its economic resilience and political resolve.