Indonesia’s new cabinet: A boost for economic policy and reform

Author: Hal Hill and Chris Manning, ANU

President Susilo Bambang Yudhoyono (universally known as SBY) announced the cabinet for his second five-year term shortly after his inauguration on October 20. Its composition and quality provide one of the best indications of the president’s policy priorities, as well as his political strategy.

SBY’s Democrat Party emerged as the major, though minority, party at the April parliamentary polls, while he had a resounding victory in the July presidential election. He is therefore in a much stronger position than in 2004. In May, he made a surprising choice of Dr Boediono as his vice presidential running mate, a ‘non-politician’, a respected economic policy maker (and also an Australian graduate).

Despite greater success in the polls, however, he has still decided to opt for ‘rainbow cabinet’ with an eye to getting bills passed in the DPR, the lower house of parliament. The new cabinet reflects these compromises. The majority of the 37 portfolios have gone mostly to party people. Overall SBYs grand coalition of Muslim parties received twelve, Golkar three and SBY’s own party seven. The balance has gone to professionals, most notably in the field of economics.

Consistency in economic policy and a clear agenda for policy reform were two stumbling blocks for the previous administration. This time it might be different. Unlike the previous Vice President, Jusuf Kalla, Boediono can be expected to provide greater coherence in economic policy. Working with him will be three highly accomplished women, all with doctorates in economics.

Sri Mulyani Indrawati, an able, tough and outspoken Finance Minister, continues in that position, and is certain to want to continue her wide-ranging reform agenda.

Mari Pangestu, like Boediono an Australian graduate, and the most knowledgeable trade minister in the region, retains her post. One item already on the bilateral agenda is the Australia-Indonesia Free Trade Agreement which Minister Pangestu (who has written widely on the benefits of an open trade regime) is committed to completing. She is likely to strike a tough but reasonable bargain on sensitive issues such as agriculture.

They will be joined by a newcomer, Armida Alisjahbana, as planning minister, who should give that agency a much-needed boost in its main task of coordinating development policies, after several years in the doldrums.

Overall, the economics team is arguably the most highly credentialed in the Asia-Pacific region and signals a commitment to conservative macroeconomic management, an open foreign trade and investment regime and an active role in regional and international forums. Their Australian counterparts will find them to be natural allies on a range of regional and global issues, from the G20 to the East Asian Summit.

Greater consistency in economic policy is also likely to result from the appointment of a special Presidential Unit for Management of Reform (Indonesia’s ‘West Wing’) under the respected Kuntoro Mangkusubroto, former Head of the Aceh Nias Reconstruction Agency.

Two businessmen who join the cabinet as head of the Department of Industry and the Investment Coordinating Board can both be expected to promote the interests of domestic business strongly. But this is unlikely to accompany any significant increase in restrictions on foreign trade or investment.

Other professional appointments have been made to the important ministries of foreign affairs, home affairs, education, health and public works. SBY has dropped some controversial ministers, including the protectionist agriculture minister and the conspiratorial health minister. The removal of both bodes well for greater international cooperation.

The President’s desire for a more activist role for Indonesia in regional and global affairs should be furthered by the appointment of Dr. Marty Natalegawa, as Foreign Minister. Dr. Natalegawa is an eloquent and internationally respected former Head of the Indonesian Delegation to the United Nations (and also an Australian graduate).

This has been a very good year for Indonesia. A decade ago, the economy was on the ropes, there was nasty ethnic conflict, and the possibility of territorial disintegration could not be discounted. Twelve months ago there was great uncertainty, both about the effects of the global financial crisis and the conduct and outcome of the parliamentary and presidential elections. In the event, the former has had a surprisingly mild effect while the latter went off smoothly. In the economic field, at least, SBY’s new cabinet can be expected to consolidate these gains. It would be a pity if the Australian media focus on boat people and Balibo distracted our attention from these hugely important developments.

Hal Hill and Chris Manning are economists with the ANU’s Indonesia Project.

This article first appeared in the Australian Financial Review.