Yudhoyono’s Selection for Finance Minister Rattles Market

Yudhoyono’s Selection for Finance Minister Rattles Market

President Susilo Bambang Yudhoyono’s decision to opt for an acting finance minister to replace Agus Martowardojo threatens to cloud the policy outlook as Indonesia struggles to revamp its fuel-subsidy program, step up infrastructure investment and damp price pressures.

Hatta Rajasa will replace Martowardojo, who is set to become the next Bank Indonesia chief, the government said April 19. Rajasa is chairman of the National Mandate Party, a member of Yudhoyono’s Democrat Party coalition, and will also remain coordinating minister for the economy.

The Jakarta Composite Index, which has gained about 16 percent this year and reached a record last week, fell after the announcement that came an hour before the close of trade on April 19. Rajasa assumes the role as the government plan to curb fuel subsidies threatens to boost inflation that reached a 22- month high in March, adding to the burdens of an economy facing falling prices for its commodity exports including palm oil.

“The decision is quite strange — it will have a negative impact on the stock market and the rupiah,” said David Sumual, an economist at PT Bank Central Asia in Jakarta. “Indonesia needs a finance minister with a background in macroeconomic and fiscal policy, as there are so many problems in the economy.”Indonesia’s benchmark index (JCI), which was little changed at the time of the announcement, closed 0.3 percent lower, posting its first decline in four days. The rupiah has slipped more than 5 percent in the past 12 months, the biggest decline after the yen among 11 Asian currencies tracked by Bloomberg.

Not Serious

Rajasa’s tenure will end before Yudhoyono completes his five-year term in 2014, Julian Aldrin Pasha, a presidential spokesman, said by phone on April 19. Pasha said he doesn’t know when a new finance minister will be named.

Yudhoyono’s choice of Martowardojo earlier to replace Governor Darmin Nasution when his term ends May 23, also received mixed reactions from analysts. Rajasa, whose daughter is married to the president’s son, has been chief economic minister since October 2009 and was previously state secretary.

“The dual position can lead to the perception that the government is not serious about the finance ministry,” said Lana Soelistianingsih, an economist at PT Samuel Sekuritas in Jakarta. The limited term “adds to the uncertainty.”

Yudhoyono has sought to cut fuel subsidies and allocate more funds to infrastructure to spur economic growth. The government limited the use of partially subsidized diesel in January, after protests derailed plans to raise prices in 2012.

Outsider Pick

A move to raise gasoline and diesel prices or restrict the use of subsidized fuel would add to inflation, increasing pressure on the central bank to raise interest rates. Price gains quickened to 5.9 percent last month from a year earlier.

Bank Indonesia has held borrowing costs for 14 meetings and lowered its 2013 economic growth forecast to between 6.2 percent and 6.6 percent from a previous estimate of 6.3 percent to 6.8 percent. While gross domestic product has risen above 6 percent for the past nine quarters, the economy expanded in the three months through December at the slowest pace in more than two years as exports fell amid a decline in commodity prices.

Palm oil posted a fourth weekly decline last week, the longest losing streak since the four weeks ended Dec. 14. Prices of metals including copper and tin, which the Southeast Asian nation also exports, have fallen as the International Monetary Fund lowered estimates for Chinese and world growth this year.

Indonesia spent 211.9 trillion rupiah ($22 billion) on fuel subsidies last year, spurring demand for energy products that contributed to a record trade deficit in October. Containing the subsidy bill will be a key challenge for the finance minister.

Delay of structural reforms, especially rationalization of the energy subsidy regime, is a constraint in Indonesia’s sovereign-credit quality, Standard & Poor’s said in a report this month.

To contact the reporters on this story: Berni Moestafa in Jakarta at bmoestafa@bloomberg.net; Novrida Manurung in Jakarta at nmanurung@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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