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Indonesia Gets a New Finance Minister
Written by Our Correspondent
Tuesday, 14 May 2013
Muhammad Chatib Basri. Photo from Jakarta Globe
Well-respected economist has a limited range of options
Muhammad Chatib Basri, the current head of Indonesia's investment
promotion agency and an ally of former finance minister Sri Mulyani Indrawati,
is expected to take over the job she was pushed out of to go to the World Bank
in 2010, Coordinating Minister for the Economy Hatta Rajasa said Monday.
If Chatib is appointed, it would be welcomed by the international
investing community, which has been beset by rising economic nationalism in
recent years.
One reason Chatib is generally well liked by both local and foreign
businessmen is that he is relatively blunt and realistic about the challenges
the economy faces. "I say openly to investors that you're going to see problems
in Indonesia," he told the American Chamber of Commerce in Indonesia during a
recent interview. "I don't deny the problems, they are legitimate and real."
Despite a long run of good economic news in recent years, the prospects
for significant structural reform in the face of relentless political pressures
have not recovered since Sri Mulyani, a free trade disciple and tough reformer,
was basically driven from her position under pressure largely orchestrated by
allies of tycoon Aburizal Bakrie, whose mining empire was a target of her tax
reform attempts.
Since her departure, the drumbeat of economic nationalism also has been
steadily rising.
Sri Mulyani was replaced by Agus Martowardojo, the chief executive
officer of Bank Mandiri, who was recently named governor of Bank Indonesia, the
country's central bank.
Agus, also a tough-minded reformer with few political ties to the
administration, was abruptly removed in circumstances that have yet to be fully
explained. His departure, with just a year and a half to go in President Susilo
Bambang Yudhoyono's second and last term, puzzled and worried some investors at
a time when regulatory issues have been erratic in a number of sectors.
At the forefront of rising economic nationalism has been Hatta Rajasa,
who as coordinating economic minister is instrumental in appointing Chatib to
the finance ministry. Chatib's appointment was widely expected.
One byproduct of recent restrictions put in place on mining exports and
the renewal of oil and gas contracts held by multinational companies has been a
rising budget deficit that Chatib will inherit. With a short time in office, it
is doubtful that he can make any dramatic headway other than holding the line
on spending. If the government moves ahead on promises to cut crippling fuel
subsidies that have blown out the budget as export earnings have fallen, it
will fall on Chatib to implement the changes.
Most nationalist-driven measures (particularly in agriculture and natural
resources) are so far along and driven to such an extent by political
considerations that it is unlikely a finance minister - even one as well
respected as Chatib - would have much impact on the broad directions of policy.
For the past year, the 47-year-old Chatib has been in charge of
Indonesia's Investment Coordinating Board (BKPM). He is considered to be a
professional and has no political party affiliation. He has served as a
consultant to a wide range of international agencies including the World Bank,
the Asian Development Bank and the Asia-Pacific Regional Advisory Group of the
International Monetary Fund. He was also a consultant to the Institute of
Southeast Asian Studies in Singapore and a number of local and international
companies.
"Obviously we are still [sticking with a replacement for finance minister
from] within the cabinet, and clearly not from a political party. He is a
professional," Hatta told local media. Hatta has been acting finance minister
since Agus Martowardojo's appointment to the central bank was announced.
Indonesia has come under increasing criticism for leaving a policy vacuum
at both the finance ministry and the Bank, the country's two most important
government finance institutions.
Chatib takes over at a time when concern is rising over the state of
Indonesia's economy, with inflation rising at a 5.57 percent clip in April,
marginally down from March at 5.6 percent. The rupiah has also continued to
shed value, falling to 9,736 to the US$1, marginally down from April. He is the
third finance minister since President Susilo Bambang Yudhoyono was reelected
in 2009. Analysts say the central bank has left its benchmark policy rate at
5.75 percent, a record low level, far too long, further threatening the value
of the rupiah.
The government has been struggling with an unsustainable US$22 billion
annual domestic fuel subsidy but risks a political conflagration if the subsidy
is withdrawn, with an election looming in 2014. Tax revenues are not rising
fast enough to meet an increasing fiscal deficit, much of it driven by the
unsustainable subsidy.
After leaving the Finance Ministry in 2010, Chatib served as an
independent commissioner at publicly traded companies Astra International,
Gresik and Indika Energy until his appointment to the investment board last
year. He oversaw record amounts of money coming in from abroad despite the
roadblocks set in front of international investors, with FDI climbing to US$20
billion, an all-time high, with an additional US$10 billion from local sources.
"In general, we need a minister of finance who is capable, who has a good
background, who is disciplined and can work professionally," Raden Pardede, the
president commissioner of the State-owned Asset Management Company, told the
Jakarta Globe.
"It will be hard for him to make any kind of long-term planning in
one-and-a-half years. So he needs to prioritize controlling spending, so that
the budget deficit doesn't get too big. When it comes to spending, this will
include the fuel subsidy policy. He needs to do something smart about this."
Peter Fanning, chairman of the International Business Chamber in
Indonesia, said the group would be confident with Chatib as finance minister,
particularly looking at Indonesia in the bigger context.
"His work tends to be with the bigger picture, not really about the
details like what we are concerned about. He has a good grasp of the bigger
picture," Fanning said.
Still, Fanning was skeptical that anyone appointed as finance minister
now would be able to achieve much.
"We do not expect him to make a lot of significant changes in such a
short period of time," he said. "The economy has been managed pretty well, and
I believe that he will continue to do so."
(With reporting from the Jakarta Globe)
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