April 19, 2013 1:52 pm

Concern at choice of Indonesia minister

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Indonesia Chief Economic Minister Hatta Rajasa in Jakarta©AFP

President Susilo Bambang Yudhoyono has appointed a close relative and political ally as acting finance minister, adding to growing concerns about fiscal and monetary policy in Indonesia at a time when the rupiah and the state budget are under pressure.

Seasoned technocrats have typically been chosen to run Indonesia’s finance ministry and the selection of Hatta Rajasa, who has little financial experience despite his role as co-ordinating economic minister, surprised investors.

Agus Martowardojo, the outgoing holder of the position, is the second consecutive reformist finance minister to leave the job midterm. He had clashed with vested political and business interests as he tried to maintain fiscal discipline and increase tax revenue to sustain the country’s economic boom.

His predecessor, the highly regarded Sri Mulyani Indrawati, was forced out of the government in 2010 after her reformist zeal ruffled feathers in the elite.

Analysts believe that Indonesia’s fiscal conservatism laid the grounds for the economy to grow in a rapid but stable manner during the past decade. But they have warned that complacency is setting in. Protectionist economic policies have undermined investor confidence and the failure to cut unsustainably large energy subsidies has contributed to a weakening current account position.

Mr Rajasa stood in as temporary finance minister after Ms Indrawati's departure to become the managing director of the World Bank in 2010. 

A presidential spokesman said it was not yet clear whether Mr Rajasa, who will remain co-ordinating economic minister, would keep the additional job of finance minister until the presidential elections next summer, when Mr Yudhoyono will step down after reaching the constitutional two-term limit.

“What is important is to ensure a smooth transition at the helm of the finance ministry,” he said.

Fauzi Ichsan, an economist for Standard Chartered in Indonesia, said that “the markets were expecting someone from the traditional pool of technocrats”.

“The fact that Hatta Rajasa is also leader of PAN [the National Mandate party] may raise questions over a political appointment to the post of fiscal guardian.”

Although PAN, a moderate Islamic party, is only a small constituent of Mr Yudhoyono’s rainbow coalition, Mr Rajasa is a power broker and some analysts believe he is the driving force behind the succession of nationalist economic policies that have been criticised by the World Bank and added to inflationary pressures. He is personally close to the president, with Mr Rajasa’s daughter married to Mr Yudhoyono’s son.

A veteran foreign investor in Indonesia said that the appointment of Mr Rajasa on an acting basis was a “classic Javanese trick”. It would allow the president to deflect allegations of nepotism while buying time to consider whether to stick with his ally until the elections or appoint a fourth finance minister in three years.

In February, the president decided to move Mr Martowardojo, who supporters say was resisting intense pressure to loosen the state purse strings before the elections, to the much less influential post of central bank governor. He will take up that role next month. 

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