New Masters of the Indonesian Economy
Trade: Mari Elka Pangestu; Industry: M.S. Hidayat
Dian Ariffahmi, Teguh Prasetyo & Venissa Tjahjono
The appointment of MS Hidayat as industry minister has been welcomed by the Indonesian Employers Association (Apindo). The group is confident that Hidayat’s frequent anti-free trade stances would not seriously disrupt cooperation with the Trade Ministry.
Under Hidayat’s predecessor, Fahmi Idris, the Industry Ministry was often at loggerheads with the Trade Ministry, especially over the issue of whether Indonesia should join more free-trade agreements.
While Hidayat is also a FTA-skeptic and has been outspoken in voicing his concerns about the threat they pose to domestic industry, Apindo expects Hidayat to have a closer and more fruitful relationship with Trade Minister Mari Elka Pangestu, who has been reappointed to a second term.
“There is no conflict between them,” said Apindo chairman Sofyan Wanandi. “They’re good friends and can communicate with each other just fine as long as it is for the sake of the nation’s economy.
“Hidayat has built a strong network of relationships with entrepreneurs during his time as chairman of Kadin [Indonesian Chamber of Commerce and Industry],” Sofyan added. “He can act as an intermediary to push industry forward.”
On Wednesday, Hidayat and Mari held a closed-door meeting in an effort to build cooperation and coordinate their stands on key issues.
After the meeting, Hidayat said he had requested that the Trade Ministry consult with the Industry Ministry before any new FTA agreements were signed by Indonesia. “I have had a discussion with Mari. We have identified some crucial problems and have agreed that the Trade Ministry must take industrial competitiveness into account,” Hidayat said.
“So before we sign the next FTA, it must be discussed with the major players in national industry. Mari took my views on board and promised regular coordination between the ministries on these issues.”
Mari declined to comment about the meeting.
Indonesia is a party to the Asean-China Free Trade Agreement, signed in Bangkok in mid-August. It comes into effect in 2010.
It’s also a party to the Asean-Australia-New Zealand Free Trade Agreement, the Asean-India Free Trade Agreement and a bilateral FTA between Indonesia and Japan.
Indonesia is also currently in bilateral free-trade negotiations with New Zealand.
Djimanto, secretary general of Apindo, urged the Trade Ministry to play a more significant role as a facilitator between producers and consumers and to make sure Indonesian products are more competitive with imports.
“Business people also expect Mari Pangestu to help reduce costs caused by so many overlapping trade regulatory bodies responsible for labeling and supervising product quality,” he said.
Energy: Darwin Saleh
Darwin Saleh appears happy. President Susilo Bambang Yudhoyono has just chosen the 49-year-old University of Indonesia economics lecturer to replace Purnomo Yusgiantoro as the next minister of energy and mineral resources.
Darwin, who holds a PhD in financial management and an economics degree from the University of Indonesia, lacks energy-sector experience. But the father of three said he felt confident that he could take the reins from Purnomo, who has led the ministry for nine years. “Many people doubt that I can do this job, given my background,” Darwin said. “But I have studied energy issues and I am confident I can do the job.”
Darwin, who currently heads the Democratic Party’s economics and finance division, declined to reveal any specific policy plans, but offered a few hints.
“We need to reshuffle the bureaucracy,” he said.
He added that he would maintain many of Purnomo’s policies, such as a focus on the development of renewable energy. One of his first priorities would be to establish fuel stocks to last for a minimum of 23 days.
Beyond that, he said he would need to review Purnomo’s policies on specific issues, such as the domestic price of natural gas from the Donggi-Senoro project, before setting the direction of energy policy. He also said he would try to increase investment in the energy sector.
Pri Agung Rakhmanto, an energy analyst at the Reforminer Institute, said bureaucratic reform should not be a priority. “The potential threat of rising oil prices is a more important issue. The electricity crisis and unresolved issues related to the Donggi-Senoro project are far more pressing concerns,” he said.
But Pri said he thought Darwin could overcome his lack of experience in energy. “There is a huge experience gap between Darwin and [Purnomo],” he said. “Darwin will need to think carefully about how he will tackle problems in the energy sector and he must not make decisions that are biased toward the interests of other departments.”
Kurtubi, an independent energy analyst, said the new minister should streamline regulations in the energy and mineral resources sector to help attract more investment.
The fifth of eight children, Darwin has an MBA from the Middle Tennessee State University in the United States. He started teaching in 1990 and was an assistant lecturer at the university in 1993 before returning to Indonesia.
He has also worked at PT Kutai Timber Indonesia and PT Bahana Securities.
Relative Unknown Surprise SOE Minister
Janeman Latul & Venisa Tjahjono
A relatively unknown former caretaker governor of Aceh has beaten out some of the country’s most-high profile candidates, including the incumbent minister and the president director of the country’s largest bank, to take over as state enterprises minister.
President Susilo Bambang Yudhoyono, who has in recent weeks praised outgoing Minister Sofyan Djalil, on Wednesday named a former classmate, 60-year-old Mustafa Abubakar, as state enterprises minister.
Mustafa, a native of Pidie, Aceh, also edged out PT Bank Mandiri president director Agus Martowardoyo, who was initially seen as a leading candidate for the job.
Mustafa most recently served as president director of the State Logistics Agency (Bulog). He has also worked as inspector general at the Ministry of Maritime Affairs and Fisheries.
His appointment drew mixed reactions from analysts. Some said he lacked experience in the corporate world, while others said they feared the restructuring of state-owned enterprises would be delayed until he learned the ropes. Other analysts, however, said his short tenure at Bulog — just a little more than two years — could help him with the challenges he will face in his new post. “The president asked me to lead the ministry, but I felt that I lacked experience,” Mustafa said.
Yanuar Risky, an independent market analyst, said he was skeptical about Mustafa’s credentials. “What I see from the new cabinet is that competency was not a top factor [in appointments],” Yanuar said. “Mustafa’s track record neither speaks to his competency nor is it suitable for transforming SOEs so they can compete internationally.”
A senior economist at a state-owned brokerage firm also questioned Mustafa’s credentials.
“He only has a background in fisheries and agriculture,” the economist said, on condition of anonymity. “Why should he be selected as the SOE minister? Sofyan and Agus would have been better.”
Poltak Holtadero, head of research at PT Recapital Securities, said the market should withhold judgment until Mustafa had been given a chance to prove himself.
Former State Enterprises Minister Tanri Abeng praised Mustafa’s leadership at Bulog. “Mustafa is qualified for the position,” Tanri said.
Sofyan, Mustafa’s predecessor at the State Enterprises Ministry, credited Mustafa with making major changes at Bulog, particularly for creating the rice self-sufficiency program.
Mustafa earned a PhD at Bogor Agriculture Institute. He graduated the same year as Yudhoyono.
Suswono Pledges to Work for Farmers
Newly appointed Agriculture Minister Suswono is no stranger to his new assignment.
The cellphone of this politician from the Prosperous Justice Party (PKS) has recently been inundated with hundreds of congratulatory text messages from farmers and heads of farming groups.
“I haven’t been able to answer them all,” he said, smiling. “The messages keep on coming.”
Suswono, 50, was born in Tegal, Central Java. In 1984, he enrolled at the Bogor Institute of Agriculture, where he earned a master’s degree in agricultural management.
In 2004, he was elected to the House of Representatives, serving as deputy speaker for Commission IV, which oversees agriculture, plantations, forestry and marine, and fisheries and food affairs.
He has contributed numerous articles on agriculture-related topics to newspapers. In 2007, he published a book, “Bangkitlah Petani dan Nelayan Indonesia” (“Indonesian Farmers and Fishermen, Wake Up!”). Suswono said his main goals as agriculture minister would be to increase the amount of land available to farmers, ensure that they have better access to capital, and review the government’s agricultural subsidy system.
Because of the difficulty of eking out a living from a small plot of land, Suswono is keen to restart the transmigration program to give farmers access to more land.
“I have already talked with the National Land Agency [BPN],” he said. “There are seven million hectares of land outside of Java Island that are suitable for food crops. We can use that land to increase farmers’ welfare.”
Suswono also wants to change the government’s current price-subsidy mechanism for fertilizer and seeds. The system has been subject to fraud and has not benefited farmers, he said.
He added that he will look into paying subsidies directly to farmers instead of producers.
“There will be a pilot project in some areas to test the new subsidy mechanism,” he said.
President Susilo Bambang Yudhoyono has also identified 10 agricultural issues he wants Suswono to concentrate on. They include food security and rice self-sufficiency, boosting farm and plantation productivity, increasing farmers’ buying power by raising their incomes, and lifting cattle production to achieve red meat self-sufficiency by 2014.
Suswono said the goals could be achieved during his five-year term. As agriculture minister, he now has the power to make sure he won’t be letting his text-messaging well-wishers down.
The Economy: Hatta Rajasa; Finance: Sri Mulyani Indrawati
Muhamad Al Azhari & Dion Bisara
Observers gave a muted response to Hatta Rajasa’s appointment as coordinating minister for the economy, with one calling it a political decision and doubting how effectively the minister, who has little background in economics, could deal with complex development issues.
The ministry is theoretically a powerful one. It was set up to coordinate planning, policy formulation and coordination among the economics ministries. It now coordinates the work of 14 ministries and agencies that have some involvement in the economy.
However, its coordinating role has traditionally been weak. Real hands-on economic power rests in the hands of the finance minister.
Hatta, who graduated from the Bandung Institute of Technology with a bachelor’s degree in petroleum engineering, was first appointed to ministerial office by Yudhoyono as transportation minister in the 2004-2007 cabinet. He previously served as research and technology minister in the Megawati administration.
Hatta had a poor track record as transportation minister. He was strongly criticized for a spate of ferry and air accidents that occurred under his watch, leading to the eventual banning of all Indonesian aircraft from Europe in 2007. Despite this, Hatta, who is perceived as being close to Yudhoyono, was retained in the cabinet and was appointed state secretary in 2007.
Johanna Chua, a Singapore-based economist at Citigroup, characterized Hatta’s appointment as a purely political move. However, she said Hatta had the capacity to provide political clout in dealing with an often recalcitrant House of Representatives on economically important legislation.
But she was unsure about how well he would be able to work with Finance Minister Sri Mulyani Indrawati.
“The market may be somewhat disappointed that, except for some key technocrats, the allocation of cabinet posts may signal ‘business as usual’ — and thus, structural reforms catapulting Indonesia to a higher level of growth may be a slower process than expected. We’ll have to wait and see,” Johanna said.
Helmi Arman, an analyst at Bank Danamon, said, “Overall, we think the cabinet lineup, including Hatta, will at most have a neutral impact on the markets. Those that had predicted a more assertive presidency in this second term should start toning down their expectations.”
However, Harry Azhar Azis, a lawmaker from the Golkar Party, who has been elected as the chairman of the key House budget commission, said he hoped that Hatta’s cabinet experience and his close relationship with the president would help him deliver.
“When the President wants to prioritize an issue, when the president says the priority of this administration is welfare … then what is the exact formula? I am hoping he can deliver something more quantitative,” Harry told the Jakarta Globe on Friday.
Investment: Gita Wirjawan;
Janeman Latul & Irvan Tisnabudi
The domestic and international business community has largely praised the appointment of Gita Wirjawan, the former country chief of US-based JPMorgan Chase, as the new head of the Investment Coordinating Board. Observers have said that his appointment to the agency, also known as the BPKM, would likely improve its poor performance.
Indonesia, Southeast Asia’s biggest economy, is losing foreign direct investment to its bigger rivals China and India because of its reputation for corruption and impenetrable red tape. The appointment of Gita, a former international banker-turned-investor, has given the business community reason to hope that the deterrents to investment might be removed.
“I see it as a very welcome move,” said Peter Fanning, the chairman of the International Business Chamber. “He’s very practical when it comes to attracting investors.”
“I hope for a less bureaucratic approach in the future for investors in Indonesia. More coordinating and less regulating would be good,” he added.
Gita is one of the most highly respected dealmakers in the country. He is the cofounder of Ancora Capital, a Shariah-compliant private equity firm specializing in natural resources.
It manages about $300 million, mostly from Muslim-majority and Middle Eastern countries. His connections in the Islamic world also played a role in helping to attract $3 billion in investments from Middle Eastern companies during the World Islamic Economic Forum in March.
Gita was the mastermind behind the merger of Bank Niaga and Bank Lippo, both owned by Malaysia’s CIMB Group, as an essential step to consolidate the domestic consumer banking industry. He was also behind the Abu-Dhabi-based Emirates Telecommunication’s minority-stake acquisition of PT Excelcomindo Pratama, the country’s third-largest mobile phone operator.
Fauzi Ichsan, vice president of the Indonesian unit of Standard Chartered Bank, noted that Gita has hands-on experience in the world of international investing.
“He has many international associates, so all there is to do is get them to invest here in Indonesia,” Fauzi said. “[Previous BKPM chief] Muhammad Lutfi is more of an experienced domestic businessman, but Gita is more of an international one.”
Gita told the Jakarta Globe on Friday that his main goal as BKPM chief is to enhance capital inflow and long-term foreign direct investment. “It is needed to increase the country’s prosperity and lower unemployment and the poverty rate,” Gita said.
But some market analysts have also cautioned that Gita’s appointment could be a conflict of interest with his ownership in Ancora.
“Gita’s strength as BKPM’s head is also his biggest weakness. I hope he would be able to leave behind all his business interests during his time at the agency, which could be an example for most of our public service officers,” said Yanuar Risky, an independent analyst.
Gita addressed this concern by promising to keep a distance between his business interests and his new job.
“I’m ready to delegate all my business interests as a stakeholder, owner and manager in order to avoid any conflict of interest,” he said on Monday.
Maritime Affairs & Fisheries: Fadel Muhammad
With his mix of political and business experience, and a relatively strong track record in his home province, newly appointed Minister of Fisheries and Maritime Affairs Fadel Muhammad could do a lot to develop the sector, one analyst said, although another expressed doubts about his abilities on the national stage.
Fadel took charge of the ministry from his predecessor, Freddy Numberi, during a ceremony at ministry headquarters on Thursday.
His principle challenges will be to start applying a number of new laws in the fisheries sector, which provide for the zoning of maritime and coastal areas for fishing and aquaculture. He will also be in charge of spearheading the ministry’s fight against illegal fishing by both local and foreign vessels, as well as illegal and ecologically damaging forms of fishing, such as dynamite or blast fishing.
Born in Ternate in 1952, Fadel took the helm in 2001 as governor of the newly created Gorontalo Province in Sulawesi, where he remained until 2009.
He holds a degree in engineering.
A senior member of the Golkar Party, Fadel is a well-known businessman. He earned plaudits for his role as governor in developing Gorontalo’s agriculture sector, particularly his promotion of corn cultivation.
However, critics say he lacks an academic background in fisheries.
In his acceptance speech on Thursday, Fadel said that President Susilo Bambang Yudhoyono had urged him to focus on improving the welfare of fishing and coastal communities.
“The president also stressed the need to explore the full potential of the oceans and the fisheries sector,” he said.
On infrastructure in coastal areas, Fadel said his ministry would work closely with the Public Works Ministry to build better access roads to fishing communities to help them get their catches to the market.
Arif Satria, a fisheries analyst at the Bogor Institute of Agriculture (IPB), welcomed Fadel’s appointment. Arif said he hoped the new minister would be able to harness the full economic potential of the fisheries sector.
“As a businessman, he certainly has what is needed to develop the sector. But he will also need to consider the social and ecological aspects,” Arif said. “This is essential — the fisheries sector needs to be developed having regard to all three aspects — economic, social and ecological.”
But Riza Damanik, the secretary general of the People’s Coalition for Fisheries Justice (Kiara), said that while Fadel had shown his leadership skills as a politician, businessmen and governor, his work to date had been focused on the regional level.
By contrast, Riza said, the fisheries sector was highly complex, “and he has no track record in handling such problems at the national level.”
In addition, Riza said understaffing at the ministry meant Fadel would have difficulty in seeing his policies through.
“Without capable and adequate human resources, he will find it impossible to put his programs into effect.”
Fadel’s career has not been without controversy. As Gorontalo governor, he was dogged by rumors of involvement in the paying out of a 2001 provincial budget surplus worth Rp 5.4 billion ($574,000) as allowances to 45 councillors, rather than returning it to the provincial treasury.
Prosecutors eventually cleared Fadel of all wrongdoing, saying that he was not involved in the decision to disburse the surplus monies.
However, doubts continue to linger in the minds of many.
Development Planning: Armida Alisjahbana
Economists have welcomed the appointment of Armida Alisjahbana, an economics professor from Padjajaran University in Bandung, as State Minister for National Development Planning, saying she is eminently suitable for the job.
As state minister, Armida will also serve as the ex officio head of the National Development Planning Board (Bappenas), which plays an essential role in conducting research on the country’s economic and development potential, and in preparing comprehensive national development plans.
Anton Gunawan, an economist at Bank Danamon, said Armida was well-suited to her new job. “I believe she will do a better job than [her predecessor] Paskah [Suzetta] as she has experience as a researcher, which is what Bappenas is all about — conducting studies and making sure that vital projects receive the funding they require,” he said.
“I think Bappenas, and the newly formed Presidential Working Task Force on Development Supervision and Control, headed by Kuntoro Mangkusubroto, need to work hand in hand as both of them have the same objective, which is developing the national economy over the long term.”
One of five women in President Susilo Bambang Yudhoyono’s cabinet, the 49-year-old Armida was born in Bandung. She holds a PhD in economics from the University of Washington in the United States and previously served as a consultant at the World Bank and the Australian development agency, AusAid. She has also worked extensively for the Ministry of Finance and the Coordinating Ministry for the Economy.
On her short-term goals, Armida said: “I hope I can improve communication between all levels [of Bappenas] and also enhance communication between central and local governments.
“I hope that under my command Bappenas will engage in more focused planning for central and local development. This will, in turn, help reduce poverty and unemployment.”
Aviliani, an economist at the Institute for Development of Economics and Finance, who is known to be close to Armida, said that Bappenas needed to improve its approach to planning.
“Bappenas shouldn’t just collect and compile data from the ministries. It also needs to make greater efforts to ensure more effective budgeting and utilization of foreign loans. Further studies need to be conducted as, in my opinion, there is still a lot of unnecessary spending by ministries.”
Unlike Paskah, Aviliani said Armida should not have to spend too much time focusing on bureaucratic reform in Bappenas.
“The structure of the organization is already strong, but Bappenas needs to be more outspoken so as to ensure maximum efficiency in the budgeting process.”
Paskah said that during her time at Padjajaran University, Armida had assisted Bappenas as a member of its statistical unit, and he had no doubt that she would be capable of executing the National Mid-Term Development Plan through 2014.
“I think she will do well.”