Man with manufacturing mission named Indonesia finance chief


Indonesian President Joko Widodo turned to an economist with a mission to make manufacturing a key growth driver for the nation as the next finance chief.

Bambang Brodjonegoro, 48, a former dean of the economics faculty at the University of Indonesia -whose graduates have helped shape the country's economic policy for decades - was inaugurated today by Jokowi, as the new leader is known. His priority is to retain economic resilience ahead of a Federal Reserve policy move next year, Brodjonegoro said on Monday.

Brodjonegoro said in an August interview that it's critical for Indonesia to elevate the role of industry in the economy, and highlighted a recent move by Toyota Motor Corp to boost production in the country as one sign of potential. A vice-finance minister in the previous administration, he also laid out a vision for phasing out the fuel subsidies that have constrained the government's fiscal room to build infrastructure.

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"Definitely manufacturing will be one of the goals of the administration to deepen as it will be able to absorb much of the labour force that's going to be entering over the next few years," said Daniel Wilson, an economist at Australia & New Zealand Banking Group Ltd in Singapore. The largest domestic market in Southeast Asia is "very attractive for manufacturers," he said.

The rupiah reversed early gains to close 0.4 percent lower at 12,109 per dollar in Jakarta today, prices from local banks show. The benchmark stock index slid 1.0 percent, as investors factored in Jokowi's compromises in combining professionals with political appointees in the cabinet.

'Bambang's Shop'
Jokowi, who inherited an economy growing at its slowest since 2009 and a near-record current-account deficit that has weighed on the rupiah, turned to members of previous governments and executives from state-owned companies to form his new cabinet of 34 ministers. The team will help shape the president's efforts to fulfill promises to curb corruption, cut fuel subsidies, reduce bureaucracy and build infrastructure.

"In terms of economic execution, it'll be Bambang's shop" even as the president will have to make the political decisions such as raising fuel prices, said Wellian Wiranto, a Singapore- based economist at Oversea-Chinese Banking Corp., referring to the new minister by his first name. "He's as technocratic as you want it to be" and a safe pair of hands, he said.

Brodjonegoro joins Coordinating Minister of Economic Affairs Sofyan Djalil, a former state-owned enterprises minister, in the top posts to run Southeast Asia's No. 1 economy. The country needs to watch a slowdown in China, its biggest single trading partner, and lower commodity prices, Brodjonegoro told reporters today.

Fuel Challenge
"The chief economic minister and finance minister have many years of experience in previous cabinets and markets are likely to see them as pretty good picks," said Gundy Cahyadi, a Singapore-based economist at DBS Group Holdings Ltd. "Bambang knows the problems of Indonesia in recent years and he knows the importance of maintaining financial system stability." One of the biggest challenges for the new finance chief will be helping Jokowi design a plan to curb fuel subsidies by allowing prices to rise. Jokowi is the latest leader of the country to promise to curtail the subsidies, a strategy that helped end the three-decade rule of dictator Suharto and has eluded four presidents since.

Jokowi has said he will reduce the subsidies gradually, to free up funds to help the poor, build infrastructure and support farmers, fishermen, and workers. Jokowi wants all economic programs related to the people to be done as soon as possible, Brodjonegoro said today, adding the president had not discussed fuel at his first cabinet meeting. Djalil declined to comment on subsidies today.

Growth Risk
Failure to scale back the costly system and use the proceeds at least in part to invest in infrastructure would risk Indonesian economic growth slumping below 5 percent in three to five years, Brodjonegoro said in August. A revamp must be done before the U.S. Federal Reserve starts raising interest rates, which could put pressure on the rupiah next year, he said, proposing a shift to a fixed subsidy per liter, and a cap on the volume of fuel that is subsidized.

"He's probably going to propose this new scheme which is to fix the subsidy, which is a new scheme of course and therefore it might take time," said Euben Paracuelles, a Singapore-based economist at Nomura Holdings Inc. "The perception is he's not of the same stature as his predecessors and so there are some questions regarding whether he's going to be able to navigate the difficulties" of handling budget matters that go through a relatively hostile parliament.

Korean Examplev
Jokowi lacks a parliamentary majority and the opposition, built around losing presidential candidate Prabowo Subianto, holds the speaker positions in both houses of the legislature. Prospects for a strong political opposition hampering his reform plans have led the rupiah to give back most of its gains earlier this year and foreign funds to pull more than $1 billion from Indonesian stocks since the start of September.

Indonesia needs to boost manufacturing, which has waned as a share of the economy since the 1990s, Brodjonegoro said in August. The next government should also build "downstreaming" capabilities to process its resources, he said, referring to derivative products of commodities such as palm oil, petroleum, nickel and copper to offer higher-value exports.

The Finance Ministry can help with tax incentives, and other agencies can ease approvals for transactions such as land purchases, he said then. The country would need to improve its fiscal, monetary and real sector fundamentals to reach a growth target of 7 percent by 2016, he said today.

Brodjonegoro has a doctorate in urban and regional planning from the University of Illinois at Urbana-Champaign in the U.S. and a Bachelor in Economics from the University of Indonesia. Before being made vice-finance minister in former President Susilo Bambang Yudhoyono's government, he was head of fiscal policy at the ministry.

He sees South Korea as a country Indonesia should emulate, citing the nation's transformation from one of Asia's poorest countries into a manufacturing powerhouse within a "fully" democratic political system.

"They become famous not because of their natural resource commodities, but because of their man-made products, which I think is very amazing," he said in the Aug. 12 interview. "It's a good example."

First Published: Oct 28 2014 | 12:06 AM IST

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