Bringing back Boediono

Indonesia

Dec 8th 2005 JAKARTA
From The Economist print edition

Indonesia's president chops away some dead wood, but not enough

FIRING three ministers and shuffling another three might not always be a sign of a seismic policy shift. But when Susilo Bambang Yudhoyono did so on December 5th, it marked a significant break with the first 13 months of his presidency.

The former general stressed that the new line-up was his choice and no one else's. In other words, Mr Yudhoyono has finally asserted himself over his powerful vice-president, Jusuf Kalla.
Mr Yudhoyono shifted Mr Kalla's protégé, Aburizal Bakrie, from senior or “co-ordinating” economics minister to senior welfare minister. Mr Bakrie had been a curious choice to manage the economy, given his history as a favoured businessman under Suharto, Indonesia's disgraced former strongman, and as a big defaulter during the economic crisis of 1998. His appointment had been seen as a sop to his party, Golkar, the largest in parliament, which Mr Kalla heads. So his demotion will inevitably be viewed as a break with Mr Kalla, although Mr Yudhoyono did try to compensate Golkar with an extra slot in the cabinet.

The new economics team looks much more promising. Mr Bakrie's replacement, Boediono, is no stranger to government, having served as finance minister from 2001 until 2004. While in office, his extreme fiscal prudence and technocratic impartiality won him a glowing international and domestic reputation. The impressive Sri Mulyani Indrawati, who in the past year has transformed the state planning agency into an institution of unaccustomed influence, will take over the finance ministry from the underwhelming Yusuf Anwar. The most prominent casualty was the welfare minister, Alwi Shihab.

The stockmarket reacted well to the new economic team, while the rupiah continued its recent climb. But problems lie ahead. The central bank, which is independent, has raised interest rates to their highest level in three years, to stem inflation and steady the rupiah. The recent jump in inflation, to just under 19%, is the result of the government's decision to raise the price of subsidised fuel dramatically in October. Higher interest rates and prices may dent the economy, which grew by a relatively sprightly 5.3% in the third quarter.

Foreign investment has fallen short of expectations, in part because of such concerns. But the outgoing economic team made matters worse by failing to resolve various disputes with investors, including a row with ExxonMobil over the possible extension of its contract to operate a big oil field called Cepu. ExxonMobil and Pertamina, Indonesia's state oil firm, are equal shareholders in the scheme. But ExxonMobil wants to be sole operator, while Pertamina wants the two firms to take turns in charge. Mr Yudhoyono pledged to solve the dispute during his first 100 days in office, but it is still festering, 13 months later.

The government's campaign against corruption is also flagging. Hamid Awaluddin, the justice minister, kept his job in the reshuffle, despite swirling allegations of corruption. So far, the campaign has claimed no bigger fry than a provincial governor and an election commissioner. A more thorough clean-out of the cabinet, observers speculated, might have looked too much like an admission of failure.

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