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Is Sri Mulyani Indonesia’s Best Hope for Economic Reform?

In his second cabinet reshuffle, Jokowi substitutes finance minister Brodjonegoro with Sri Mulyani Indrawati. What does this say about the nation’s balance sheet?

Since taking office in October 2014, President Joko ‘Jokowi’ Widodo has reshuffled his cabinet twice. In his latest shake-up last month, the president appointed 12 new ministers, which unsurprisingly has led to a tumultuous past few weeks for the government. However, the mainstream media spotlight is shining on Sri Mulyani Indrawati, who now takes over for Bambang Brodjonegoro as finance minister.

But it’s not the first time Sri Mulyani has held the position. She was finance minister from 2005 to 2010 under Susilo Bambang Yudhoyono (SBY), but resigned after a disastrous Century Bank bailout incident involving stolen money and a criminal owner that would infamously go down in history as one of Indonesia’s biggest graft cases. Sri Mulyani regretted the decision to approve the bailout, allegedly calling the decision a mistake. She then went to work as managing director of World Bank in Washington DC, a lateral move that kept her reputation intact.

Despite the Century Bank incident, Indonesians have lauded Sri Mulyani as one of the most authoritative economic policy makers in the world. During SBY’s tenure, she managed the balance sheet to the point where it was one of the most conservative in the world. She reduced the nation’s cost of debts to 30 percent of overall GDP, and helped to stabilize the archipelago’s macro-economy. She made a name for herself as a prudent fiscal policy maker, and helped strengthen investor trust in the archipelago.

Going to work at World Bank was a popular move for Sri Mulyani among local politicians and business moguls. According to Tony Prasetiantono, the independent commissioner of Bank Permata and chief economist at Bank Negara Indonesia, Jokowi was on a mission to bring Sri Mulyani back to Indonesia as finance minister. She politely refused his first invitation to join the cabinet. In July, however, Jokowi sent a personal letter to the executive director of World Bank Dr. Jim Yong Kim, pleading for Sri Mulyani’s return. Following this letter, she opted to resume her previous role as Indonesia’s finance minister.

Experts speculate that Jokowi’s desperation and the sudden return of Sri Mulyani are both signs that the country is on the verge of financial troubles. In July, however, the Ministry of Political, Legal and Security Affairs stated that Indonesia’s economy as a whole has performed well under Jokowi’s leadership. It claimed the strength of the rupiah is on the mend, while the nation has been generating more revenue and the poverty rate is declining. Antara says these indicators likely convinced Jokowi to go ahead and use up government subsidies that were originally allocated for education, welfare, and other sectors.

The ministry’s statement was immediately countered by Sri Mulyani. The acting finance minister said the country’s tax revenue has in fact not reached targets outlined in the state’s budget for the next four years.

In 2014, the gap between the government’s actual tax revenue and its target revenue clocked in at Rp.100 trillion (US$7.63 billion). It did not improve the following year, widening to more than Rp.248 trillion (US$19 billion). Sri Mulyani says she expects the gap this year to be smaller at Rp.219 trillion (US$16.72 billion). This is largely due to the government revising its tax revenue targets. Economist Faisal Basri stated that all these things were the previous finance minister’s failures.

Bambang Brodjonegoro failed to promote the country’s economy to sceptical foreign investors.

Sri Mulyani’s global reputation as a strict fiscal conservative — combined with her expertise and willingness to say ‘no’ to the president — are likely what the cabinet needs at this moment.

Some say Brodjonegoro lacked these authoritative qualities, which may have ultimately led to his ousting as finance minister.

Dr. Fithra Faisal is a former staff member from the fiscal policy office at the Ministry of Finance. Today he is the executive director of a think tank called the Indonesian Progressive Institute. “It’s not that we are in great trouble, but we need her to bring trust,” says Faisal in an interview with Indonesia Expat.

“With regard to the national budget, the country is currently facing a shortfall, and Sri Mulyani is needed to clean up the mess.”

Despite the government’s high hopes that a new tax amnesty programme would provide a revenue boost, the numbers are a far cry from their respective targets, so far pulling in a laughable Rp.84.46 billion (US$6.44 million) out of a projected Rp.165 trillion (US$12.5 billion), according to The Jakarta Post. Faisal says he is still optimistic about the programme at large, but not about its quantitative target. According to him, Sri Mulyani’s main focus this year will be to maintain the credibility of the state budget and fiscal policy, while also promoting and monitoring the tax amnesty programme.

Sri Mulyani has also proposed Rp.133 trillion (US$10.15 billion) in cuts to the state budget, saying it was too high and did not provide realistic value, given the nation’s current economic situation. Without affecting the government’s high-priority spending plans on infrastructure and social assistance, Sri Mulyani plans to adjust expenditures by cutting Rp.65 trillion on low-priority and institutional spending. She also wants to cut Rp.68 trillion (US$5.2 billion) from regional transfer funds to arrive at a new state budget for 2016.

Following Sri Mulyani’s appointment as finance minister on 27 July, the Jakarta Composite Index immediately spiked by 1.3 percent, peaking at 5.301 at the end of the trading day. On the same day, the Indonesian rupiah strengthened by 0.5 percent against the US dollar. With these figures in mind, it’s clear that market players see Sri Mulyani’s return as a strong ingredient for Indonesia’s financial future.

Faisal agrees. According to him, a trusted economic figure like Sri Mulyani, with a positive reputation internationally, will more than likely bolster foreign investor confidence in Indonesia. “I am very confident that Sri Mulyani can spearhead economic reform,” says Faisal. “Her experience in coping with the 2008 crisis speaks louder than words.”

Although experts and stakeholders in Indonesia are optimistic about Sri Mulyani’s return, the effects have yet to be seen and many don’t want to count their chickens before they hatch. Cautiously optimistic observers, like Faisal, hope she can turn the country’s long-lasting financial deficits around, and set a good example for future ministries.


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