Questions arise as Indonesian finance minister resigns

With the presence of top reformers like Indrawati in the cabinet, investors have poured money into Indonesian assets on expectations of strong economic growth and improved prospects of an investment grade credit rating for Southeast Asia's largest economy. Investors will pay close attention to the appointment of her successor as a sign of President Susilo Bambang Yudhoyono's commitment to reform.

Stocks have tumbled by more than 5 percent since Tuesday. The rupiah weakened to 9,225 per dollar on Thursday from 9,030 on Wednesday. Indomitra Securities analyst David Fernandus said the market was shocked.

"These past 2 days showed a significant fall. The market players are left guessing on who is the replacement, whether the successor will be able to pursue policies that are not so different from Sri Mulyani's policies. These are the factors which make the market choose profit taking."

Indonesia's "icon of reform"

The reforms made during her term in the finance ministry have been praised by many and also by the market.

Her uncompromising attitude to graft - she punished almost 2000 finance ministry personnel and dishonourably discharged at least 150 - was seen as a model for other ministers to follow.

Standard Chartered's senior economist in Indonesia, Fauzi Ichsan, said of the independent policy expert who was named "finance minister of the year" in 2006 by Euromoney magazine, "Sri Mulyani's departure is a loss to Indonesia, she is a true icon for Indonesian reform. There are many people here who excel in macroeconomics but only a few who possess the ability and courage to reform the bureaucracy."

Indrawati raised salaries and introduced more transparent work practices including computerised records. She recently announced further reforms including a proposal to install CCTV cameras in tax office rooms and a shake-up of the tax tribunal. Under Indrawati, the tax office has cracked down on alleged tax evaders including Bumi Resources, run by the family of Golkar party chief Aburizal Bakrie.

Indrawati's departure also raises questions about the commitment to cut expensive energy subsidies and raise electricity tariffs. It may also affect a long-running feud over who gets to buy shares in a lucrative copper and gold mine run by Newmont Mining Corp. Bumi has been eyeing that deal for some time as it expands its mining interests, whereas Indrawati had been open to finding other buyers.

Her clean-up of the notoriously corrupt tax and customs offices has hit powerful vested interests ranging from businessmen and law-enforcement officials who benefited from smuggling goods to tycoons who routinely evaded paying millions of dollars in taxes and duties.

Indrawati has left big shoes for someone to fill. The head of Transparency International Indonesia, Teten Masduki, is worried that Indrawati's successor will not take on the vested interests who stand to lose most from a genuine war on corruption.

"Her departure will badly affect reform of the bureaucracy in Indonesia. The next finance minister could be easily pushed around. The finance ministry is a huge source of money. It will be a target for corruption, especially for political funding."

Targeted by political opponents

Indrawati's resignation has come as a surprise to many observers. Faisal Basri, economist at the University of Indonesia, says, "before Sri Mulyani joined the cabinet, she worked for the IMF. Then she got called to dedicate herself fully to Indonesia by the president. Now Mr. Yudhoyono is allowing her to go back to Washington. I find it strange. As if the President wants to get rid of a huge burden. As far as I know, Sri Mulyani would never just leave a responsibility like that. And remember, she just got appointed as finance minister a couple of months ago."

Over the past 18 months, Indrawati and Vice President Boediono have come under attack from political opponents eager to unseat two of the most powerful drivers of change in Indonesia, in particular for their role in approving the 700-million-dollar bailout of mid-sized Bank Century.

Indrawati announced her resignation a day after being questioned by anti-graft investigators probing the Bank Century bailout. She has denied any wrongdoing. But Fuad Bawazier, a senior member of the opposition Hanura Party, told local media he believed Indrawati's departure is in line with the Bank Century inquiry committee's recommendations.

Indrawati and Boediono, then central bank governor, agreed to the bailout at the height of the 2008-2009 global financial crisis to stave off the risk of widespread panic in Indonesia's financial markets.

Bakrie group companies have also repeatedly clashed with Indrawati. While Golkar is a member of Yudhoyono's coalition, Bakrie is considered a symbol of Indonesia's old guard. A Bakrie spokesman, Lalu Mara Setria Wangsa, said on Thursday:

"I think her resignation is good as it gives other bureaucrats or economists a chance to show their qualities because I think many of them are qualified too. It had nothing to do with Pak Ical," referring to Bakrie by his family nickname.

Political analyst Kevin Evans from the election monitoring firm, Pemilu Asia, commented, "the immediate presumption is this is a happy day for someone who wants to wind back the changes."

Indrawati's replacement has not yet been announced, but President Susilo Bambang Yudhoyono is soon going to start the selection process, his spokesman said.

Author: Carissa Paramita / AFP / Reuters
Editor: Grahame Lucas