Life in Indonesia after Sri Mulyani Moves to WB

By Sunanda Creagh and Olivia Rondonuwu

JAKARTA, KOMPAS.com - To gauge reform prospects after the departure of Indonesia’s finance minister, here’s what to watch: who gets her job, how the balance of power in the cabinet changes, and what happens with probes into tax evasion and graft. Sri Mulyani Indrawati’s move to a prestigious World Bank position means President Susilo Bambang Yudhoyono has lost his top reformer, a woman who by her own admission was “obsessed" with shaking up Indonesia’s bloated and corrupt bureaucracy.

Yudhoyono now has to convince Indonesians and foreign investors that he remains committed to driving reform and fighting corruption despite the opposition of powerful figures who fear their privileged economic position is under threat. Those pledges won him a second, five-year term in last year’s elections, fuelling substantial capital inflows into Indonesian assets.

The stock market index has doubled over the past year, bonds yields have dropped, and the rupiah was the best-performing Asian currency. Normally jittery over capital outflows, Indonesia instead grew nervous about strong inflows.

“It’s too early to say all is over for reform,” said Marcus Mietzner of the Australian National University, noting that other key reformers are still in place, like Vice President Boediono and Presidential Delivery Unit chief Kuntoro Mangkusubroto.

“I don’t think it’s a huge watershed unless we see a bad successor, someone who is clearly a proxy for a party.” The most important sign of commitment to reform will come from Yudhoyono’s choice of Indrawati’s successor, and whether that person is seen as capable of taking on vested interests.

“He wants the reform agenda to continue, so he wants a person with integrity, capability, who is going to create change,” said Hatta Rajasa, coordinating economic minister and a close friend of the president. He expects another technocrat to get the job.

Choice of successor is key

Some analysts see Darmin Nasution, currently acting governor of the central bank, as the person who could most easily meet those ideals. He worked closely with Indrawati in the finance ministry, and was head of the tax office during its shake-up, implementing reforms and pushing investigations of tax evaders.

“He has the guts to stand up to tax evaders,” said Fauzi Ichsan, economist at Standard Chartered Bank. Anggito Abimanyu, who heads the fiscal policy unit at the finance ministry, is considered the favoured candidate of the Golkar Party, which is part of Yudhoyono’s coalition but has often been very resistant to reform.