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By Antony Currie

MELBOURNE, Sept 9 (Reuters Breakingviews) - Investors in Indonesia are about to discover whether they have put too much faith in one person. On Monday President Prabowo Subianto ditched long-serving finance minister Sri Mulyani Indrawati amid weeks of political unrest stemming from rising costs of living. She is well respected for fiscal discipline and helped steer the country through the 2008 financial meltdown, the COVID-19 pandemic and other crises. Fears that her removal presages Prabowo increasing spending in the $1.4 trillion economy on Tuesday sent the rupiah IDR= down almost 1% against the U.S. dollar and wiped nearly 2% off stocks in Jakarta.

On one level, her dismissal is a harsh necessity of domestic politics. The protests, which broke out toward the end of August, were sparked by legislators being given a housing allowance worth nearly 10 times the minimum wage in Jakarta. Meanwhile the government was preaching austerity, having recently increased sales taxes and pledging to slash the regional budget by 25%.

Much of that was driven by Prabowo's expensive promises at last year's election, not least to provide free lunches for all school children and to increase defence spending. But as controller of the purse strings tasked with keeping the deficit under 3% of GDP, Sri Mulyani bore the brunt of the crowds' ire - some even looted her home. Her steady hand in the role she has held in two stints for 14 of the past 20 years has helped reduce the country's debt, get inflation under control and entice overseas capital: foreign direct investment hit a record $55 billion last year. But evicting her could be a necessary sop to the masses.

Her departure, though, also arguably removes an obstacle to Prabowo spending his way out of the crisis. Sri Mulyani's replacement, economist Purbaya Yudhi Sadewa, has already said he thinks GDP can grow by up to 7%, and even hit Prabowo's preferred 8% target. Of course that could just be for the cameras and the protesters, but with the economy currently increasing by around 5%, it raises the prospect of digging deep into government coffers.

Indonesia does, though, have some wriggle room. The deficit currently stands at 2.5% of GDP, while debt is at some 40% of the same measure - a far healthier position than during the 1997 Asian financial crisis and a level that's the envy of many Western governments. In addition some of Prabowo's infrastructure and energy policies have been farmed out to recently created sovereign wealth fund Danantara, which is in part capitalised by dividends from state-owned groups, reducing the burden on taxpayers.

If Prabowo and Purbaya operate within those confines, it would be welcome proof that Sri Mulyani was not holding back a spending deluge on her own. But overseas investors may choose to hold their breath.

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CONTEXT NEWS

Indonesia's President Prabowo Subianto on September 8th removed long-serving finance minister Sri Mulyani Indrawati from her position, replacing her with economist and head of the Indonesia Deposit Insurance Corporation Purbaya Yudhi Sadewa.

The decision comes after two weeks of protests initially sparked by anger at big allowances for legislators while the president proposed cutting regional funding by 25% to help fund some of his signature policies like free school lunches.

Speaking to reporters after his appointment, Purbaya said he would "create economic growth of 6% to 7%".

(Editing by Robyn Mak; Production by Aditya Srivastav)

((For previous columns by the author, Reuters customers can click on CURRIE/antony.currie@thomsonreuters.com))