Sri Mulyani Indrawati has been voted Asian finance minister of the year yet again for three main reasons: she has fostered an unexpected economic performance from Indonesia despite inflationary pressures running at 6% this year: she has led a successful reorganization of the economic ministries that has concentrated more power in her office and laid the grounds for more focused and driven reform; and she has been a key figure in establishing Indonesia’s reputation as Asia’s outstanding borrower of the year.
Controlling inflation without choking economic growth is perhaps the biggest challenge facing policy-makers and is especially the case for Indonesia. “Compared to other south-east Asian countries that rely on exports, we have a strategic policy of making the economy directed towards domestic resources,” says Sri Mulyani Indrawati.
Tightening monetary policy while keeping the economy rolling has been helped by markedly improved relations between the ministry of finance and the central bank. This is largely down to Indrawati’s expanded brief since May as overall economic coordinator and the installation of the respected Boediono – who goes by just the one name – who had previously done both her jobs, at the head of Bank Indonesia, the central bank. His appointment followed a year-long investigation into corruption at the central bank that ended with the previous governor’s arrest.
“We’ve had some very difficult decisions to make since the Asian crisis, and we are not there yet,” says Indrawati. “We have to build a new relationship based on trust. Boediono, as an ex-finance minister, has shared experience of both passion and sympathy, and we have the same understanding of language and trust.”
They get on well together clearly, but she accepts that more important is the “institutionalization of that trust” – and that’s a fine metaphor for Indonesia in general. So too is the “direct communication” between different sectors of government and society at large.
Getting a fuel hike through parliament in May without setting off major riots in the country was a stunning negotiated political achievement. “It was not an overnight result – it required the approval of the budget,” says Indrawati. “We put out all the scenarios of what might happen, called and asked politicians what did they want. Yes, we want to reduce poverty and unemployment and develop the country, but as much as we want to do that, with external shocks and inflation, it has led to a growing deficit – do they want us to reduce that or maintain it?”
That response also impressed foreign investors, allowing the Republic of Indonesia to fund its budget shortfall with its largest ever bond the following month – a $2.2 billion, 10- and 30-year global offering. This was similar to the $2 billion bond in January, whose success was said by market participants to be in large part due to Indrawati’s performance on the roadshow.
In addition, the ministry has been looking at doing an international sukuk bond shortly, having just established the first benchmark bond in the domestic market – an area of financing that offers huge potential for Indonesia, says Indrawati.