Indonesia's New Finance Minister Agus Takes Up SBY’s Challenge

Jakarta Globe, Muhamad Al Azhari, May 20, 2010

Agus Martowardojo, center, and Anny Ratnawati, right, being sworn in by President Susilo Bambang Yudhoyono at the State Palace in Jakarta on Thursday. Yudhoyono instructed the new minister of finance his deputy to pursue prudent fiscal policies and reforms. (JG Photo/Yudhi Sukma Wijaya)

During the inauguration of Agus Martowardojo as finance minister on Thursday, President Susilo Bambang Yudhoyono instructed him to maintain prudent fiscal policy, boost tax revenue while continuing reforms at the tax office, improve the flow of money to underdeveloped regions as well as the transparency and accuracy of the government’s financial reports, and play an active role in international forums.

It was, in short, a daunting to-do list for even the most accomplished executive, and Yudhoyono did not mention, because he did not need to, that Agus should also be prepared for political warfare.

Agus said he was up to the challenge, and that he would continue to implement reforms of the tax and customs offices as well as the ministry’s bureaucracy.

“One of the main agenda items is reform of the bureaucracy,” he said. “What is good for the Finance Ministry, we will continue, and what is left we will improve.” Asked whether tax and customs reform would also continue, he said: “Yes, we will handle that.”

He also vowed to implement a “change of culture” at the ministry, saying he expected officials to work with pride and integrity.

Agus also promised to continue pursuing tax-evasion cases against the corporate sector, but added that it was equally important to create a healthy climate for development.

The former president director of PT Bank Mandiri is seen as a market-friendly, accomplished banker with an excellent reputation among domestic and international investors.

His deputy, Anny Ratnawati, worked as a technical adviser at the Finance Ministry for five years and was promoted to director general of budgeting two years ago.

They are both likely to need all of their skills, and each other, to surmount the challenges and navigate the potential pitfalls ahead, analysts said.

In a note to clients, PT Bank Danamon analysts Helmi Arman and Anton Gunawan wrote that Agus’s lack of experience in macro economic, fiscal and public policy making would be a hindrance, especially given Coordinating Minister for the Economy Hatta Rajasa general lack of macroeconomic experience. However, they wrote, Anny’s experience in policy making in these areas would help compensate, but not entirely.

“This could mean an increasing role for [State Minister for Development Planning] Dr. Armida Alisjahbana in advising the government on macroeconomic policy issues,” Helmi and Anton said in the note.

Nick Cashmore, head of securities broker CLSA in Indonesia, said: “The primary task will be maintaining fiscal stewardship of the government’s budget, implementing government policy while also supporting a broader reform agenda.”

Another challenge just ahead includes pushing a new draft law on the new Financial Service Authority (OJK), which once established will reduce Bank Indonesia’s supervisory role over banks and detach the Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK) from the Finance Ministry.

The 2004 central bank law said such a body must be established by the end of this year based on the lessons learned from the 1997-98 Asian financial crisis. The process of drafting the law has been slow as Bank Indonesia is keen to retain the power to oversee the nation’s banks, despite Bapepam officials having no objection to their detachment.

Senior central bank officials have said the stability of the financial system may be put at risk, but the deadline is nearing.

Fuad Rachmany, the head of the committee who drafted the OJK law and the head of Bape pam, said on Wednesday that he would deliver the draft to lawmakers but warned the politics of it would not be easy.