Sri Mulyani Appointment Could Be a Blow to Antigraft Campaign

Jakarta Globe, Sara Webb, May 05, 2010

There are fears that Sri Mulyani Indrawati's departure as finance minister could be a major blow to a crackdown on graft and tax evasion. (EPA Photo)

Indonesian Finance Minister Sri Mulyani Indrawati, a key reformer in Southeast Asia’s biggest economy, is leaving office in what could be a major blow to a crackdown on graft and tax evasion.

Indrawati, 47, was named a managing director of the World Bank Group, a sign of the growing clout of emerging economies.

But the move also reflects increasing pressure on her at home from politicians opposed to her clean-up campaign.

“It’s a good move for her, but not good for Indonesia,” said Nick Cashmore, head of CLSA in Indonesia.

“She’s leaving earlier than expected, not doing the full five years. It shows that all these undercurrents are gathering pace.”

President Susilo Bambang Yudhoyono has congratulated Indrawati on the move, indicating he is willing to let her go, but investors will be watching who he appoints as her replacement for a signal on where the reform programme is headed.

Chief economic minister Hatta Rajasa will temporarily take charge of the finance portfolio until Indrawati’s replacement is appointed, presidential spokesman Julian Pasha told Reuters on Wednesday. Indrawati is to take up the World Bank post on June 1.

Rajasa is better known for his political skills, unlike Indrawati, who has a doctorate in economics and was an executive director at the International Monetary Fund before joining government.

Investors have been big buyers of Indonesian assets in the past 18 months, largely attracted by its pace of reform and liberalisation and the prospect of a surge in demand for its vast natural resources as the global economy recovers.

Local financial markets fell after the announcement of Indrawati’s move, but analysts said the weakening in the rupiah to 9,090 per dollar from 9,030 and a 3 percent drop in the stock market reflected broader investor concerns about emerging markets and risk related to the euro zone.

“The market will definitely react negatively to her departure,” said Destry Damayanti, an economist at Mandiri Sekuritas in Jakarta.

“Hopefully it is a short-lived one, but it all depends on who replaces her. That is the main concern for now, her replacement. What is needed is someone who is a professional, someone who is not politically biased.”

Likely candidates include: Anggito Abimanyu, the head of the ministry’s Fiscal Policy Agency; Chatib Basri, an academic and special adviser to the finance minister; Raden Pardede, an economist and former head of the state asset management company; and Agus Martowardojo, president director of Indonesia’s largest lendor Bank Mandiri.

The change at the finance ministry comes at a time when the country is still without a governor for Bank Indonesia, the central bank. Darmin Nasution, the senior deputy governor, has been acting governor since mid-2009.

“With Sri Mulyani’s strong and credible reform credentials, her departure is likely to be seen negatively by the market, not to mention that Indonesia has not had a BI Governor in almost a year,” Citibank economist Johanna Chua said in a research note.

“Thus, vacancies in two of the most important economic posts will raise some concerns about the credibility of macro policies and the pace of reforms. Nonetheless, we think despite her departure, Indonesia’s track record of prudent fiscal policies will likely remain intact.”

Indrawati and Vice President Boediono, who was earlier the central bank governor, were regarded as Yudhoyono’s top reformers, taking a tough public stance against corrupt politicians, officials and businessmen in a country that ranks among the most corrupt in the world.

Their reforms, for example in the tax and customs offices, led to improvements in revenue collection but much more remains to be done to clean up the civil service, including the police and judiciary.

Indrawati raised salaries at revenue departments, fired corrupt officials, and introduced more transparent work practices including open plan offices and computerised records.

She has sent sent investigators from the anti-corruption commission on surprise raids, including to the customs department, to check whether officials had cash stashed away.

However, tax evasion remains a serious problem. In a country with a population of about 240 million, there are only 16 million registered tax payers.

Reuters

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