Indonesia Loses Its Stellar Reformer

Indonesian stocks fell sharply, the rupiah weakened and bond yields rose Wednesday on the news that Finance Minister Sri Mulyani Indrawati,the most important reformer in the government of President Susilo Bambang Yudhoyono, is leaving to become one of three managing directors of the World Bank.

An official with the International Monetary F+und prior to joining Yudhoyono's government, Sri Mulyani was a principal architect of reformasi, Yudhoyono's stuttering campaign to clean up corruption in a country making its slow but tortured way up the rankings of Transparency International's global corruption perceptions index. Indonesia is now ranked 111th of 180 countries.

Among other measures, she closed Indonesia's notoriously corrupt customs agency, a major impediment to companies importing and exporting through the country's ports. She fired dishonest officials and raised bureaucrats' salaries in an attempt to clean up corrupt practices. Just this week, she announced that she would attempt to clean out the Directory of Taxation after widespread publicity over bribes to tax officials. In early April, a fleeing tax official named Gayus Tambunan was persuaded to return from Singapore after he had been identified as having taken millions of dollars in bribes from businessmen seeking to lower their tax burden.

Her decision to leave the government is being interpreted widely as either a victory for anti-corruption forces or a desire to leave after she got fed up with months of controversy over the bailout of the mid-sized Bank Century in the midst of the global financial crisis.

Much depends on who will replace her. Hatta Rajasa, the Coordinating Minister for Economic Affairs, was named to take the portfolio temporarily. Rajasa, formerly Yudhoyono's State Secretary and an ally of the president, is not an economist and, as a politician, is regarded is more likely to weigh political considerations rather than economic ones in stearing the economy. Anggito Abimanyu, the head of the finance 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 lender Bank Mandiri, were named by Reuters as possible successors.

It is questionable, however, whether any of the candidates would have the determination that characterized Sr Mulyani's operations. In addition, the country is still without a Central Bank governor since the time when Boediono left to become Yudhoyono's vice president in mid 2009 prior to the national election. Darmin Nasution, the senior deputy governor, has been acting governor.

Sri Mulyani made a particular enemy of Aburizal Bakrie, the powerful head of the Bakrie group of companies and head of the Golkar Party, for vetoing a bailout for Bakrie's distressed companies during the 2008 global financial crisis and for carrying on a sustained campaign to force Bakrie's companies to pay back taxes. It remains to be seen if her departure represents a victory for Bakrie in particular.

Putting the best face on it, the departure is being cast as a vote of confidence by the World Bank in Sri Mulyani's integrity after the months-long controversy that ended on March 3 over the 2008 Bank Century bailout. With the bank threatened with an outright collapse that could have endangered the country's financial system, the finance secretary and Vice President Boediono, then the chief of Indonesia's central bank, poured US$700 million into its coffers in the attempt to save it. Several bank officials fled the country with several hundred millions of dollars in funds from the looted bank. The officials said the crimes that occurred had nothing to do with the bailout.

The charges of corruption against the two officials were widely regarded as a specious attempt to get rid of them. Bakrie, who critics say saw in the investigation a chance to drive Sri Mulyani out of the government, has lately muted his opposition to the finance minister. Despite the fact that Golkar was a major part of Yudhoyono's coalition, Golkar led the fight in the special investigative committee investigating the activities surrounding the bailout. The probe finally sputtered out after months of grandstanding by lawmakers opposed to the two although on Monday several opposition members walked out of the chamber when the Finance Minister arrived to present the annual budget -- which passed nonetheless.

One of Indonesia's richest men, Bakrie is also said to nurse ambitions to succeed Yudhoyono when the country's president completes his current five-year term in 2014. Sources in Jakarta told Asia Sentinel that Bakrie has been drawing closer to Yudhoyono over recent weeks. Whether that is because they are becoming more closely allied or because Bakrie had given up his campaign against her is unclear, the sources say. They point to the fact that in early April, Yudhoyono made a well-publicized trip to look over the site of Indonesia's worse manmade environmental disaster in history.

That is a mud volcano that blew out at the East Java site of a gas well being drilled by PT Lapindo Brantas, a Bakrie company. Since May of 2006, the stinking mud has inundated tens of thousands of homes and is expected to continue to flow for as long as the next 30 years. Although the Bakrie companies have assumed some responsibility to compensate homeowners, the government has absolved Bakrie from blame for the disaster. Some political observers saw in Yudhoyono's trip a warning to Bakrie to pull in his horns over Sri Mulyani. Immediately after the visit, the East Java Police Chief announced that the investigation into the causes of the blowout could be reopened if there was new evidence.