Fresh hope for economy with new man at helm

Fresh hope for economy with new man at helm

Bhimanto Suwastoyo, Agence France-Presse/Jakarta

The appointment of a well-regarded technocrat to Indonesia's embattled economic team promises greater unity of purpose and policy, giving fresh hope for Southeast Asia's largest economy, analysts say.

The country's economy has taken a hammering this year, with soaring oil prices clearing out public coffers and pressuring the rupiah as the government scrambled to keep paying out expensive domestic fuel subsidies.

It hiked fuel prices by an average of 126 percent in October but that resulted in a sharp spike in inflation and has stoked fears of interest rates being cranked higher and a growth slowdown.

In a reshuffle he promised would occur a year after he swept to power as the country's first popularly elected president in October 2004, Susilo Bambang Yudhoyono appointed U.S.-trained Boediono as his economic team's head late on Monday.

Boediono, a finance minister under the previous government of Megawati Soekarnoputri, was widely credited with stabilizing Indonesia's economy after the disastrous Asian financial crisis of 1997-1998.

"This is welcomed. It will be good for the economy, at least in the short-term," economist Umar Juworo from private think tank, the Institute for Development of Economics and Finance (INDEF), told AFP.

The choice of Boediono, as well as macro-economic expert and former Asia Pacific IMF director Sri Mulyani Indrawati as new finance minister, provided "long-awaited certainty" and would be good for markets, he said.

"The two share the same views on many things, including the need for lower inflation and an equilibrium between fiscal and monetary policies," he said.

Pande Raja Silalahi, a senior economist with another think tank, the Centre for Strategic and International Studies, also hailed the new economic line-up, saying they "really know their field and share the same school of thought."

Stocks and rupiah early on Tuesday extended recent gains, immediately reflecting the markets' welcome for the new cabinet, dealers said.

The Jakarta Stock Market composite index opened 0.09 percent higher at 1,121.630 while at 8:30 a.m. the rupiah was at 9,945/9,955 to the dollar, compared to Monday's of 9,955/9,960.

Allegations of vested interests held by the previous economic team had been a top concern by investors, Silalahi said without elaborating.

Critics have suggested that the outgoing economy minister, businessman Aburizal Bakrie, may have been faced with conflicting interests.

"With this new line-up, this worry is now gone ... I think one can lay greater hope on this team than on the previous one," Silalahi added.

INDEF's Juworo warned that in the mid-term, the team may hit coordination snags as the reshuffle was limited and ministers who emerged unscathed may feel overconfident about their performance.

Silalahi also cautioned that two cabinet newcomers -- Paskah Suzetta as national development planning minister and Erman Suparno, as labor minister -- had unproven track records.

Sri Adiningsih from Gadjah Mada University said the new team would be likely to coordinate policies with Bank Indonesia better as Boediono and Indarwati "have quite good relations" with the central bank where Boediono was a former deputy governor.

Political analyst Syamsuddin Harris, from the state Indonesian Institute of Sciences, said the reshuffle showed that Susilo was still constrained by political considerations.

"Political support remains a main consideration so that the result is compromise. If it was a purely economic decision, Aburizal Bakrie, if deemed to have failed in his duties, should have been simply discharged, not moved to another posting," he told AFP.