Agus Martowardojo
Indonesian President Susilo Bambang Yudhoyono has set the cat among the pigeons with a surprise choice of nominee as central bank governor to succeed Darmin Nasution, whose term ends in May.
The rupiah has barely moved since Saturday?s news that the president had plumped for finance minister Agus Martowardojo (pictured left). But his record has been questioned by some members of parliament, which will have the final say on the appointment. Prepare for rumbles, with politicians increasingly focusing on the 2014 presidential election.
Parliament has form: even though the Indonesian president has plenty of clout, MPs rejected Martowardojo?s candidacy for the central bank in 2008, and could do so again.
Yudhoyono may simply be clearing the decks in advance of the polls ? and shunting aside a finance minister who has irritated some ruling party supporters by his drive for fiscal discipline.
Sri Mulyani Indrawati, his corruption-fighting predecessor, faced similar battles and was also forced out.
Martowardojo, 57, is a veteran banker who previously ran Bank Mandiri, Indonesia?s largest lender. But he lacks the economic credentials of the 64-year-old Darmin, who has a PhD from the Sorbonne. MPs in 2008 refused to accept Martowardojo because of his lack of monetary policy experience ? and it?s easy to see how the same arguments could be used again.
Some MPs now say that the country?s worsening fiscal pressures should also count against the finance minister. The fiscal deficit widened to 1.8 per cent of GDP in 2012 from 1.1 per cent. The rupiah was last year the weakest of Asia?s bigger emerging market currencies.
Finally, there are opposition parliamentarians who claim that Martowardojo is tainted by financial scandal. Dolfie Ofp, an opposition member of the finance committee, was quoted by Reuters as saying: ?For the BI governor nomination, we don?t only look at technical capability. We also look at integrity and national interest. Agus Martowardojo?s involvement in the Hambalang (graft) case makes us doubt his integrity.?
Dolfie was referring to a corruption scandal surrounding the construction of the Hambalang sports complex, which at the weekend saw the resignation of the sports minister and of the chairman of Yudhoyono?s ruling Democratic Party. Martowardojo was questioned last week by Indonesia?s anti-corruption agency as a witness in relation to the affair. He denied any responsibility for the spending decisions at the centre of the scandal.
Meanwhile, Harry Azhar Azis, vice chairman of the finance committee, has given less than his full support for Martowardoj. He was quoted by Bloomberg as saying: ?We realise that the previous finance committee rejected Martowardojo?s candidacy for Bank Indonesia Governor. This time it will depend on the fit-and-proper test.?
But, it could well be that politicians are more interested in picking holes in the candidacy than investors. As Standard Chartered Bank said in a note, the finance minister is known for his fiscal conservatism ? and has sometimes gone out on a limb to defend his position:
He has repeatedly proposed a sharp hike in subsidised fuel prices (often differing with Yudhoyono on the issue) in order to reduce government spending on energy subsidies, increase fiscal flexibility, and ensure that the fiscal deficit remains below the statutory 3% of GDP. Under his leadership at the Ministry of Finance, Moody?s and Fitch upgraded Indonesia to investment grade, praising Indonesia?s fiscal prudence against the global backdrop of fiscal crises in Europe and the US.
What will really matter to investors is fiscal policy in the run-up to elections. They will want to know that, if Martowordojo gets the governor?s job, his successor will resist political pressures for pre-poll splurging.
Standard Chartered says:
We do not expect changes in the BI governor and finance minister posts to disrupt Indonesia?s economy, as both institutions have solid bureaucracies that can continue to ensure smooth day-to-day operations.
That?s true. But politicians fighting elections have only one priority.
Related reading
Indonesia?s graft-buster aims high, beyondbrics
Indonesia minister quits over graft charge, FT
Indonesian rates: steady as she goes,beyondbrics
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