The Boediono factor

The Boediono factor

Boediono's appointment as coordinating minister for the
economy is surely the main point of interest in the Cabinet
shuffle announced by President Susilo Bambang Yudhoyono on Monday
night.

The Wharton-trained economist, who was finance minister
during Megawati Soekarnoputri's administration from 2001 to 2004,
more than any other person was responsible for Indonesia's return
to macroenomic stability following the 1997 financial crisis. He
commands a great deal of respect both at home and abroad for his
integrity and competence.

Boediono's record as finance minister is even more impressive
considering it was achieved in extremely difficult circumstances,
when the country was still under the tough oversight of the
International Monetary Fund, the highly assertive House of
Representatives was eager to meddle in the nitty-gritty of
economic policy and foreign investors remained reluctant to
return to the country. And, of course, Megawati rarely reached
out to the public to argue for economic reforms.

With Sri Mulyani Indrawati, formerly the head of the National
Development Planning Board, being named finance minister and Mari
Pangestu being retained as the trade minister in the new Cabinet,
Susilo has formed a solid economic team, which, as Boediono
himself has acknowledged, is key to successful economic
management.

The other new members of the economic team -- industry
minister Fahmi Idris and the new state minister for national
development planning/National Development Planning Board
chairman, Paskah Suzetta, both from the Golkar Party, and
agriculture minister Anton Apriyantono of the Prosperous Justice
Party (PKS) -- seem to have been appointed more for their
political parties' support for Susilo's government, rather than
for their technical competence and track records

Boediono will go a long way toward improving the integrity
and credibility of the government's economic policy-making,
unlike his predecessor, businessman Aburizal Bakrie, who
constantly found himself under suspicion for having conflicts of
interest. Boediono's knowledge of the bureaucracy, which is
crucial for his role as coordinating minister, is impressive
thanks to his previous stints as state minister for national
development planning and deputy governor of Bank Indonesia.

Boediono's calm and careful approach to getting things done
will also serve him well as his team works to persuade the House
of the merits of government reform packages. We were deeply
impressed by the patience Boediono showed when, as finance
minister, he spent about half of his time persuading and prodding
House members to approve the government's economic reforms.

However, to be effective Boediono and his team must have the
full trust and backing of the President. Only this will allow the
economic team to draft and implement coherent and consistent
economic policies.

Boediono realizes the importance of a coherent and credible
strategy that outlines how the various individual policies hang
together, outlining the broad direction in which the economy is
being steered. This is an important element that was notably
lacking under the previous economic team due to a lack of strong
and credible leadership.

The President must shield his new economic team from
intervention by vested interests, and should see to it that
Boediono, as the chief economics minister, is fully in charge of
drafting and implementing economic policies, based on the
direction set by Susilo.

The new economic team will have to hit the ground running
because the economy remains the country's most troublesome
sector. Further strengthening macroeconomic stability, in itself
a formidable task, is not enough. Macroeconomic stability must be
translated into vibrant microeconomic sectors to generate
productive jobs.

Boediono must act immediately to improve coordination between
fiscal and monetary policies in the current high inflationary
environment, and expedite the disbursement of the 2005
development budget, of which only about 30 percent has so far
been realized.

He should also resume the restructuring of the finance
ministry, which seems to have been stopped by bureaucratic
inertia and vested interests, to allow the ministry to perform
its new functions as stipulated in the Law on State Finances and
the Law on the Treasury.

He should exert strong leadership to gain a national political
consensus on the tax and customs bills being deliberated by the
House. It is worth remembering that inefficient and corrupt tax
and customs services have proven to be the main barriers to new
investment.

Boediono cannot perform miracles, but his impeccable
integrity, credibility and competence will help improve the
credibility and consistency of the government's economic policy-
making, as well as showing the market in which direction the
economy is being steered.