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Indonesian MPs to Grill Candidate for Central Bank Governor

Sunday, 24 Mar 2013 | 9:33 PM ET
Stockbyte | Getty Images

Indonesia's parliament will quiz its finance minister on Monday, to decide whether he is fit to take over as central bank chief, a job move that has raised concerns over the management of one of the world's fastest growing economies.

President Susilo Bambang Yudhoyono has yet to explain why he chose not to renew the current governor's term, or the surprise nomination last month of Finance Minister Agus Martowardojo fora job that will remove him from the cabinet.

The parliamentary commission that makes the final decision on the governorship of Bank Indonesia is expected to announce on Tuesday whether Martowardojo has passed its fit and proper test.

If he is approved, he would take over after incumbent Darmin Nasution ends his term in late May.

Though Martowardojo is a respected figure within the investment community, it is uncertain whether he can muster the necessary votes to get through the selection process.

(Read More: Indonesia's Economy Projected to Grow 6.5%)

If he fails, it would also raise questions over his chancesof staying on as finance minister.

There is speculation that ahead of general and presidentialelections next year, Yudhoyono would like someone more pliable.If there is a new finance minister, they would be Yudhoyono'sthird in three years.

Several names have surfaced as possibilities on the rumour mill, but Yudhoyono has been awaiting the outcome of the parliamentary deliberations before making any announcement.

The change comes at a sensitive time for Southeast Asia's biggest economy. Monetary policy is under pressure with inflation rising, the current account deficit worsening and the rupiah continuing to weaken.

On the fiscal side, the government's unwillingness to unwind massive fuel subsidies is putting an increasingly large hole in the budget and sapping funds that need to be spent on infrastructure if foreign investment is to continue pouring in.

"Removing a good fiscal guardian could disrupt fiscal conservatism, especially as the country approaches a general election in 2014," Standard Chartered Bank's senior Indonesia economist, Fauzi Ichsan, wrote last week.

"If global and local investor communities are mostly happy with him, why change the finance minister? If Martowardojo's successor is another conservative fiscal technocrat there may not be an issue. But if he/she is associated with the political elite, the government's fiscal belt could be 'relaxed' for what will surely be Indonesia's most expensive election campaign ever, in 2014."

(Watch Now: Indonesia an Attractive Place to Invest: BKPM)

For all the uncertainties, Indonesian markets have shown scant reaction so far to the proposed changes in the two posts that oversee the economy.

Some parliamentary commission members have criticised the president for only forwarding one candidate and questioned Martowardojo's lack of experience in managing monetary policy.

"In essence, Agus is capable and there is no problem. But if it is possible to have another candidate, that would be better. But we are still going ahead with the fit and proper test," the commission head Emir Moeis told Reuters.

There has been speculation that Martowardojo may have fallen foul of politically powerful businessmen by opposing some of their projects, including one which has been strongly backed by Yudhoyono for a bridge to link the islands of Java and Sumatra.

Born in Amsterdam, the 57-year-old Martowardojo has spent almost his entire career in the banking industry, culminating in his role as head of state-controlled Bank Mandiri, which he is widely credited as having turned around.

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