Indonesia names new finance minister, wins praise

JAKARTA Mon May 20, 2013 11:49am BST

Chairman of Indonesia's Investment Coordinating Board (BKPM) Muhammad Chatib Basri (R) speaks with a journalist after a fit-and-proper test by Indonesian President Susilo Bambang Yudhoyono at the palace in Jakarta May 20, 2013. Indonesia named Basri, 47, as finance minister on Monday as Southeast Asia's biggest economy grapples with slowing economic growth and how to bring down the massive cost of fuel subsidies. He will become Indonesia's third finance minister in as many years when he is inaugurated on Tuesday. REUTERS/Elado

Chairman of Indonesia's Investment Coordinating Board (BKPM) Muhammad Chatib Basri (R) speaks with a journalist after a fit-and-proper test by Indonesian President Susilo Bambang Yudhoyono at the palace in Jakarta May 20, 2013. Indonesia named Basri, 47, as finance minister on Monday as Southeast Asia's biggest economy grapples with slowing economic growth and how to bring down the massive cost of fuel subsidies. He will become Indonesia's third finance minister in as many years when he is inaugurated on Tuesday.

Credit: Reuters/Elado

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JAKARTA (Reuters) - Indonesia named its respected investment chief as finance minister on Monday as Southeast Asia's biggest economy grapples with slowing economic growth and how to bring down the massive cost of fuel subsidies.

The appointment of Muhamad Chatib Basri, who oversaw record foreign investment into Indonesia in his last job, was widely applauded by economists. It helps lay to rest concerns the president might choose a finance minister more likely to do his political bidding ahead of next year's elections.

Basri, 47, will become Indonesia's third finance minister in as many years when he is inaugurated on Tuesday. Both of his predecessors were seen as having fallen foul of powerful vested business interests.

In a brief statement announcing the long-delayed appointment, President Susilo Bambang Yudhoyono praised Basri's credentials as an economist, and his record during a 1-1/2 year stint as head of the investment coordinating board.

But with a parliamentary election next April and the presidential election -- in which Yudhoyono cannot run -- some three months later, Basri has limited time to bring in any major new financial policy.

Credit rating agency Standard & Poor's earlier this month downgraded its outlook for Indonesia to stable from positive, citing concerns that much-needed economic reforms were losing momentum in Jakarta.

Basri said his immediate task was to complete this year's revised budget.

"I was asked (by the president) to guard prudent fiscal policy," he told reporters.

"Secondly, the president also asked me .... to formulate a fiscal policy or fiscal incentives which suit the needs of investment in the future. Third, investment must consider labour intensive sectors or creating jobs."

The announcement came on the same day the government began presenting budget proposals for next year which assume slightly stronger growth for 2014, though that may be based in part on heavy spending as a result of next year's elections.

The economy is also facing growing deficits in both its current and capital accounts, which is worrying some investors and placing pressure on the rupiah, emerging Asia's worst performing currency last year.

"Chatib Basri is not seen as someone who comes from a political background and his appointment as the head of BKPM (investment board) has also been perceived as rather positive," said Gundy Cahyadi, economist at OCBC Bank in Singapore.

Other economists also welcomed the appointment of a politically neutral minister and the main Jakarta stock exchange index .JKSE rose on the announcement. It ended the day up 1.35 percent.

Basri faces a broad range of concerns over the economy. Growth has been slowing and the government now expects GDP to rise 6.2 percent this year, some way below original hopes.

The biggest challenge could well be fuel price subsidies which are draining the budget just as the government is under pressure to boost spending on infrastructure or risk scaring away what has been record foreign direct investment.

Yudhoyono has repeatedly dodged tackling the politically sensitive issue and has been more generally criticised for being indecisive over other key issues.

This month he said he would only consider fuel price increases if parliament agreed funding to protect the poor from the inflationary impact of higher fuel prices.

The previous minister, Agus Martowardojo, was abruptly removed from the position in April and will take over as head of the central bank later this month. Yudhoyono has never publicly explained the changes. His chief economics minister Hatta Rajasa has been acting finance minister in the interim.

Basri is seen as a protege of widely respected former finance minister Sri Mulyani Indrawati who stepped down in 2010 in the face of an onslaught of politically motivated criticism. She went on the become managing director of the World Bank.

The new finance minister has a Ph.D in economics from Australian National University.

(Writing by Jonathan Thatcher; Editing by Simon Cameron-Moore)

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