(Bloomberg) -- Indonesian stocks rose by the most in two weeks after Finance Minister Sri Mulyani Indrawati was asked by President-elect Prabowo Subianto to stay on in his new administration with just days to go before his inauguration this weekend.
The Jakarta Composite Index closed 0.9% higher on Tuesday, extending its rally for a third day. The rupiah weakened 0.1% against the US dollar as weaker trade data erased gains in early trading.
Indrawati confirmed the offer as dozens of potential cabinet candidates emerge from marathon meetings with the incoming Indonesian leader at his home that began on Monday. Gaining her support will be a major win for Prabowo as he attempts to turbo-charge growth in Southeast Asia’s largest economy.
“We see a reduction of medium-term fiscal risk perceptions following the likely reappointment of the incumbent finance minister,” Citigroup Inc. said in a note. There’s now a lesser chance that the next government could abolish the legal limit on the budget deficit or ramp up public debt ratios to finance its priority programs, it added.
Prabowo’s earlier plan to create a standalone tax agency — opposed by Indrawati — could also be shelved, Citi said. “The spin-off, while potentially endowing added independence to revenue collection efforts, also brings along a list of uncertainties concerning the budgeting process and the business environment.”
A former World Bank managing director, Indrawati was seen as a steady hand in ensuring the country’s fiscal health for much of President Joko Widodo’s decade-long rule. When asked by reporters on Monday whether she would join the next cabinet, she smiled and said: “We will help as much as possible.”
Prabowo said all attendees expressed willingness to join his team. The finance minister will likely consult with her family, said Sufmi Dasco Ahmad from Prabowo’s team, who added that until the incoming president’s oathtaking on Oct. 20, “everything is still dynamic.”
More politicians, professionals and celebrities arrived at Prabowo’s house on Tuesday afternoon as the incoming leader looks to fill in deputy minister posts in his cabinet.
Caution Remains
If Indrawati accepts Prabowo’s offer, this will be her third stint as Indonesia finance minister. She first took on the role during the presidency of Susilo Bambang Yudhoyono and reprised it in 2016 under Jokowi. Her openness to join Prabowo’s cabinet is a seeming reversal from earlier this year when she considered quitting Jokowi’s cabinet because of his support for the former military general.
“Sri Mulyani’s appointment would instantly strengthen the rupiah, bonds, and stocks because there is no longer uncertainty on the new finance minister’s policies,” said Ahmad Mikail, economist at PT Sucor Sekuritas.
Given her track record of prudent budget management, with the fiscal deficit consistently remaining below the cap of 3% of gross domestic product, Indonesia will likely be on track to bring down its borrowing costs and boost its credit ratings, he added.
Others were more cautious. Lionel Priyadi, macro strategist at PT Mega Capital Sekuritas, said Indrawati’s credentials helps with market confidence but it was not enough.
“It is not necessarily euphoria as the market is also keeping an eye on the fundamental challenges facing the Indonesian economy,” he said. “It’s how the government as a whole can navigate the economic challenges ahead, such as the weaker global growth and commodity prices, and the potential widening current account deficit.”
--With assistance from Norman Harsono and Matthew Burgess.
(Updates with market moves, analyst comments)
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