A power struggle between Indonesian President Joko Widodo and members of his ruling party has become the latest catalyst for bearish sentiment on Southeast Asia's largest economy amid a protracted currency sell-off.
"Jokowi's management credibility has collapsed in the face of constant changes to the system," IMA Asia said in a recent report, referring to the President by his nickname.
Indeed, nine months since taking office, Jokowi continues to struggle with persistent opposition in parliament, impeding the progress of reforms, including the anti-corruption laws and state-driven infrastructure programs that he campaigned on.
"To start clearing such hurdles, Jokowi must reshuffle his cabinet, but whether that leads to a better or worse cabinet is the biggest political issue for 2015," IMA Asia said.
The uncertain outlook definitely has investors worried. The rupiah tumbled to 13,465 against the greenback on Monday, the seventh time in two months that it has traded at levels not seen since the Asian Financial Crisis in the late 1990s. It's lost 9 percent year-to-date, making it Asia's worst performing currency after the Malaysian ringgit.
"President Joko Widodo is still grappling to consolidate his position nearly a year since taking office. Failure to stabilize the coalition, pass legislation, and improve the investment environment could further undermine the near-term outlook for the economy," Deutsche Bank warned in a note last week.
But a cabinet reshuffle may be easier said than done.
"Unlike former President Yudhoyono who dominated his political party, Jokowi had limited political space in composing his working cabinet, and is likely to have limited freedom in reshuffling it, too," Singapore's Nanyang Technological University (NTU) warned in a July note, noting that politician Megawati Soekarnoputri still holds the throne in the ruling Indonesia Democratic Party of Struggle (PDIP).
"Patronage thus becomes a prominent element in clinching the reshuffle," NTU said.
IMA Asia agreed, stating that Jokowi is under pressure to award the old guard leadership in his party their perceived entitlements via control over lucrative cabinet and administrative posts.
"There are rumors that the reshuffle may be politically motivated by the PDIP, in a move to increase its influence--recall that the cabinet is composed of technocrats and politicians," echoed Mizuho Bank economists.
Mizuho economists believe the reshuffle may be announced soon as Ramadan festivities are now over, adding that the primary reason behind the move is likely a decline in the President's approval rating to 40 percent, according to a survey earlier this month by Saiful Mujani Research and Consultant (SMRC).
Moreover, the President also needs to retain the loyalty of his coalition members by including their cadres in the cabinet, NTU said.