The Boediono factor

Boediono's appointment as coordinating minister for the economy is surely the main point of interest in the Cabinet shuffle announced by President Susilo Bambang Yudhoyono on Monday night.

The Wharton-trained economist, who was finance minister during Megawati Soekarnoputri's administration from 2001 to 2004, more than any other person was responsible for Indonesia's return to macroenomic stability following the 1997 financial crisis. He commands a great deal of respect both at home and abroad for his integrity and competence.

Boediono's record as finance minister is even more impressive considering it was achieved in extremely difficult circumstances, when the country was still under the tough oversight of the International Monetary Fund, the highly assertive House of Representatives was eager to meddle in the nitty-gritty of economic policy and foreign investors remained reluctant to return to the country. And, of course, Megawati rarely reached out to the public to argue for economic reforms.

With Sri Mulyani Indrawati, formerly the head of the National Development Planning Board, being named finance minister and Mari Pangestu being retained as the trade minister in the new Cabinet, Susilo has formed a solid economic team, which, as Boediono himself has acknowledged, is key to successful economic management.

The other new members of the economic team -- industry minister Fahmi Idris and the new state minister for national development planning/National Development Planning Board chairman, Paskah Suzetta, both from the Golkar Party, and agriculture minister Anton Apriyantono of the Prosperous Justice Party (PKS) -- seem to have been appointed more for their political parties' support for Susilo's government, rather than for their technical competence and track records

Boediono will go a long way toward improving the integrity and credibility of the government's economic policy-making, unlike his predecessor, businessman Aburizal Bakrie, who constantly found himself under suspicion for having conflicts of interest. Boediono's knowledge of the bureaucracy, which is crucial for his role as coordinating minister, is impressive thanks to his previous stints as state minister for national development planning and deputy governor of Bank Indonesia.

Boediono's calm and careful approach to getting things done will also serve him well as his team works to persuade the House of the merits of government reform packages. We were deeply impressed by the patience Boediono showed when, as finance minister, he spent about half of his time persuading and prodding House members to approve the government's economic reforms.

However, to be effective Boediono and his team must have the full trust and backing of the President. Only this will allow the economic team to draft and implement coherent and consistent economic policies.

Boediono realizes the importance of a coherent and credible strategy that outlines how the various individual policies hang together, outlining the broad direction in which the economy is being steered. This is an important element that was notably lacking under the previous economic team due to a lack of strong and credible leadership.

The President must shield his new economic team from intervention by vested interests, and should see to it that Boediono, as the chief economics minister, is fully in charge of drafting and implementing economic policies, based on the direction set by Susilo.

The new economic team will have to hit the ground running because the economy remains the country's most troublesome sector. Further strengthening macroeconomic stability, in itself a formidable task, is not enough. Macroeconomic stability must be translated into vibrant microeconomic sectors to generate productive jobs.

Boediono must act immediately to improve coordination between fiscal and monetary policies in the current high inflationary environment, and expedite the disbursement of the 2005 development budget, of which only about 30 percent has so far been realized.

He should also resume the restructuring of the finance ministry, which seems to have been stopped by bureaucratic inertia and vested interests, to allow the ministry to perform its new functions as stipulated in the Law on State Finances and the Law on the Treasury.

He should exert strong leadership to gain a national political consensus on the tax and customs bills being deliberated by the House. It is worth remembering that inefficient and corrupt tax and customs services have proven to be the main barriers to new investment.

Boediono cannot perform miracles, but his impeccable integrity, credibility and competence will help improve the credibility and consistency of the government's economic policy-making, as well as showing the market in which direction the economy is being steered.

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