The appointment of Sri Mulyani, Indonesia’s finance minister, as managing director of the World Bank Group should not come as a surprise.
The World Bank is in the midst of strengthening its organization and its decision-making process to accommodate the great transformation that is sweeping the global economy at the moment.
Sri Mulyani as the Indonesian finance minister has successfully guided economic policy, after navigating through the tricky course during the crisis, and bringing the Indonesian economy back to recovery.
Her academic background and her long involvement in economic research has given her in-depth knowledge of development and public policy issues. She has been a vanguard in the fight against corruption, and in implementing reforms and good governance in the ministry she headed.
Her stint as an executive director of the IMF has given her international credibility. Sri Mulyani is one of the rare people who possess extraordinary credentials that match with what the World Bank needs in this tumultuous time. She deserves the appointment.
As one of three managing directors, Sri Mulyani will oversee three regions: East Asia and the Pacific, Latin America and the Caribbean, Middle East and North America. These are regions, where most countries have reached middle-income status, enjoying high growth and are relatively prosperous.
But this does not mean Sri Mulyani will have an easy time as these countries still have pockets of poverty that need to be tackled. It is in this area that Sri Mulyani can contribute the unique experience she gained from designing and implementing anti-poverty programs in Indonesia.
As Indonesia is one country in the region, and will be under Sri Mulyani’s supervision, Indonesia certainly will gain more access to World Bank top management in terms of attention and patronage that should benefit Indonesia when the need arises.
When Sri Mulyani starts her job at the World Bank on June 1 in Washington, she will bring with her several credentials relating to her achievements as the finance minister. Her tenure as finance minister was marked by an orthodox approach to fiscal policy, where she did not let budget deficits be a destabilizing factor to the economy.
Since she gained the position job in 2005, she has expanded government tax revenues greatly through expanding tax bases and a more intensive tax collection.
She continued to rein in state budget deficits to less than 2 percent of GDP, a low figure by international standards and an achievement that became envy for many finance ministers in the world.
Successful issuances of government bonds both domestic and overseas have not only helped to plug
the budget deficits, but have contributed to the deepening of the capital market.
The performance of the Indonesian fixed income market from December 2009 was significant because the yield curve on local currency bonds has continued to shift down across all maturities, helping the government to raise cheaper funds for a smaller deficit. So far in 2010, one third of the gross plan of issuance for the whole year has been issued in the first quarter.
To the World Bank, Sri Mulyani is a figure that has staunchly adhered to its principles in managing her country’s macro economy. The success of the Indonesian economy in weathering the global financial crisis and in its subsequent recovery is a testament to the correctness of those principles.
As a managing director, Sri Mulyani is expected to pressure countries under her supervision to implement more vigorously the same approach of macro economic policy as she implemented in Indonesia.
Her presence at the top management of the World Bank reinforces the development philosophy as adhered to by the World Bank (and IMF).
However Sri Mulyani has been less successful in streamlining the process of budget disbursement. The bureaucratic snag and lack of competency of related government agencies has prevented a timely budget disbursement.
These problems had macro-economic implications in the past, in the form of sub-optimal economic growth resulting from less consumption from government expenditure.
The World Bank as an organization is bedeviled with corruption allegations committed by their officers in the field. Critics said that the rapid growth of the World Bank has made the organization too bureaucratic.
Some inept implementation of projects ran into trouble in the past that tainted the professional reputation of World Bank officers. Soon after his appointment as the World Bank president in 2007 Robert Zoellick was shocked to find the bank’s behavior appalling over a bungled project to develop a coast of a Mediterranean country.
The World Bank is in the midst of implementing reforms to streamline its decision-making process. Sri Mulyani will come to the World Bank with her experience in implementing key reforms and good governance as she did in her ministry in Indonesia.
The World Bank should draw from many of Sri Mulyani’s experiences. She could play an important role in implementing key reforms and strengthening the World Bank organization. The appointment of Sri Mulyani in this perspective was the right choice.
As financial fragility around the world is under threat from the impact of the global financial crisis, and now from the threat of the Greece debt crisis, some World Bank member countries may face bank failures and the need for their bailout. This is one area that Sri Mulyani can fruitfully share her unique experiences with her colleagues at the World Bank.
As her experiences in Indonesia — and also US and European experiences — show, bailing out a troubled bank in times of a crisis was not an exclusive domain of economic policy. It has political and legal dimensions and could produce undesirable and unpleasant ramifications.
Sri Mulyani is one of the rare people who possess extraordinary credentials that match with what the World Bank needs in this tumultuous time.
The writer is an economist.