Investors reassured by new Indonesia finance minister

After the shock of Sri Mulyani Indrawati's resignation at the beginning of May, international investors in Indonesia breathed a sigh of relief last week as a banker was appointed to run the country's finances.

Reformist finance minister Indrawati left President Susilo Bambang Yudhoyono's (SBY) cabinet to take up a senior position at the World Bank, apparently pushed or surrendering following a relentless attack on her integrity and competence by Golkar Party foes over her handling of the Rp6.7 trillion ($730 million) Bank Century rescue in 2008.

She will be succeeded by Agus Martowardojo, the highly regarded president director of Mandiri Bank, the country's biggest lender by asset size. Highly regarded, that is, by people who hope that Indrawati's programme of anti-corruption and fiscal reform will be continued.

Martowardojo, who was named in a recent FinanceAsia poll as Indonesia's best chief executive last year, was a regular member of monthly soirees organised by a leading foreign investment banker until late last year when the foreign banker moved to a new office in a different country. The meetings brought together reformers such as Indrawati and trade minister Mari Pangestu, united in their opposition to their nemesis -- the old Suharto gang led by Golkar chief and cabinet member Aburizal Bakrie.

"I think the appointment of Agus Martowardojo is the strongest among all possible candidates. Martowardojo comes with strong credibility, proven by the turn-around we saw at Bank Mandiri under his leadership. I truly believe that he should be able to continue the reform process for Indonesia and this is very positive for the country," a top Jakarta-based analyst told FinanceAsia on Friday.

FinanceAsia conducted a poll shortly after Indrawati's resignation on May 5  in which 61% of our readers said that the finance minister's resignation represented a big step backwards for the country's reform programme. Twenty-one percent said it did not and 18% said that it could go either way.

A leading figure at an international bank based in Jakarta pointed out that although "it is obviously a loss for Indonesia that Sri Mulyani is moving to the World Bank, by appointing Martowardojo, SBY has made a clear statement that the government's push towards reform will continue".

He added that Martowardojo "has made a fantastic turnaround at Bank Mandiri since his accession in 2005. Mandiri is now strong, service-oriented, and the most profitable bank in Indonesia", while Martowardojo "is regarded as a tough reformer, who has a strong leadership".

And he seems set to continue with Indrawati's reform agenda. "We're talking about a change of culture and we all need to make a commitment because we have been tasked by the state to conduct reforms in the bureaucracy," Martowardojo said after his inauguration ceremony, according to newswires. Both the stockmarket and the rupiah bounced following the announcement of his appointment.

But, perhaps displaying a more appeasing approach to Bakrie and his family companies, which include Bumi Resources, Martowardojo added that: "Collecting tax doesn't only mean approaching the issue by investigating tax evaders but also by ensuring businesses can have a healthy investment climate." Bakrie was allegedly peeved that Indrawati was investigating potential tax evasion among his companies, which then provoked a long-lasting vendetta. 

President Yudhoyono was elected to a second term in office last summer, finding support for his strong stand against corruption. But, concern had mounted that necessary reforms were being delayed, even filibustered, by political infighting acted out in the Bank Century soap opera, which tarnished the reputations of Indrawati and vice-president Boediono.

There was no suggestion that either gained financially, but the allegations focused on what their opponents claim was incompetence, and an insidious suggestion that friends of their boss -- the president -- received preferential treatment.

The conflict had induced paralysis. In a cabinet meeting on November 5, 2009, Yudhoyono set out a "One Hundred Day Programme" that contained 45 items and 129 action plans. Eliminating corruption and improving the country's notoriously inadequate infrastructure were clearly identified as essential planks of his reform agenda. But, too little had been achieved, and the local press re-named the period as "One Hundred Days of Ineptitude".

Yet, Indonesia has been particularly resilient during the global financial crisis. The relatively insular economy grew 5.7% in the first quarter of 2010 compared to the same period in 2009, and the rupiah has risen more than 7% since last July. The Jakarta Composite Index has surged by nearly 40% in the past year.

Standard & Poor's raised Indonesia's sovereign credit rating to BB from BB- in March, with a positive outlook. Following that upgrade, S&P and Moody's Investors Service both rank Indonesia two levels below investment grade, while Fitch Ratings lifted its rating to just one notch below investment grade in January.