Economy in very good hands        

            Two women, Finance Minister Sri Mulyani Indrawati and acting Bank Indonesia (BI) Governor Miranda Goeltom, will take the helm of Indonesia’s economy over the next few weeks as the incumbent President, Vice President and many Cabinet ministers will be preoccupied campaigning for the July 8 presidential election.  Fortunately for all of us, the economy has performed exceptionally well so far during this highly politicized period, recording growth of 4.4 percent in the first quarter, much higher than most other countries despite the global financial crisis and sharp downturn

Sri Mulyani will be leading fiscal management, but also, in her capacity as acting coordinating minister for the economy, trade and industry, oversees the government’s macroeconomic policies. Bank Indonesia senior deputy governor Miranda Goeltom became the acting governor of the central bank after incumbent President Susilo Bambang Yudhoyono picked BI’s former governor, Boediono, as his running mate for the presidential election.

The central bank law requires Boediono to resign from Bank Indonesia, a politically independent institution.  But Miranda, an equally able monetary expert and experienced central banker with wide international networks, will also end her tenure in late July. She will be replaced by Taxation Director General Darmin Nasution who was selected by the House only last Monday.

However, this leadership shake up will not affect the performance of the central bank by any means. On the contrary, it will be to BI’s advantage.  As the nomination of candidates for a new fully fledged Bank Indonesia governor will most likely take place only after the installation of the new government in October, Darmin, a highly respected and experienced reformer and economist will probably serve as acting BI governor for the second half of the year.

We should remember Bank Indonesia went through a much worse situation in 2000-2001 under the Abdurrahman administration when the country was still reeling from the 1998 economic crisis. For a few months in 2000, the central bank functioned normally without its governor, Sjahril Sabirin, who was imprisoned on suspicion of corruption (but subsequently acquitted of all charges).  BI also operated well for several months in late 2001 with only four of its usual seven deputy governors, during a protracted recruitment process by parliament.

We are confident that the market will remain calm during the coming months thanks to Indonesia’s current strong macroeconomic stability, but also with the credibility of Sri Mulyani’s economic management and the equally solid monetary management of the central bank.  The 4.4 percent growth, announced by the Central Statistics Agency on Friday, while less than the 5.2 percent expansion in the fourth quarter of last year, was still highly respectable compared to a deep contraction in most developed countries and sharp downturns in other emerging economies. Bank Indonesia’s latest survey also found high consumer confidence in economic prospects within the next six months.

So, all in all, if the campaigning over the next few weeks and the presidential election run peacefully, the economy will be just fine, even if there is a second round of presidential elections in September