‘I am what I am’: Indonesia’s embattled finance minister speaks out


Lawrence White
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Beloved by the international markets for her professionalism and by most compatriots for her reformist zeal, Mulyani Indrawati is battling with those who prefer things done the old way. Lawrence White spoke to her at the G20 summit.

 Indonesia’s new minister of finance Mulyani Indrawati

"I’m the minister of finance in charge of handling this crisis, and that’s my commitment"
Mulyani Indrawati

IT IS ONE of the largest trophy collections
Euromoney has ever seen – a row of gleaming gold and silver statuettes and embossed acrylic tombstones that run the entire length of the far wall in the vast waiting room on the third floor of Indonesia’s new ministry of finance building. The awards and records of successful bond deals testify to the immense acclaim in which minister Dr Sri Mulyani Indrawati is held by the various publications (including this one, in 2006 and 2008) that have named her finance minister of the year, and (more important to her) by the international debt community of bankers and investors that have helped her fund her country cheaply and efficiently over the past four years.

The meeting had been due to start at 9am but there’s no one waiting outside Mulyani’s office and after a few phone calls it emerges that she has been called away and might be available at 10.30. Mulyani has acquired a reputation among journalists as a notorious canceller of interviews, and as the clock in the plush trophy room ticks around to 11am there’s plenty of time to contemplate the enormous challenges that have confronted her at home and abroad in recent weeks. It’s late October, and the Bakrie saga is on everyone’s minds in Indonesia.

Quite apart from dealing with a financial crisis that has prompted the Indonesian rupiah to plunge to a seven-year low as investors scrambled in panic for dollars, Mulyani has had to contend with a developing saga that has threatened her government’s credibility, the national economy and indeed her own career.

Bakrie and Brothers is the holding company for a group that includes some of the country’s most prominent businesses, mainly in the energy, property and telecoms sectors, and it is in trouble. The firm was looking to raise about $1 billion to repay maturing debts, and hit upon the solution of selling its stake in Bumi Resources, a coal exporter, for $1.3 billion to a consortium headed by investment group Northstar. The collapse of the Bakrie group for failure to repay these debts would have exacerbated the effects of the financial crisis on Indonesia, so news of the sale came as relief to the administration as well as to the beleaguered company.

But there is a snag: trading of Bumi’s shares was suspended on the country’s exchange after plunging by the maximum daily limit of 10% for several consecutive days. This led to an outcry in local media that the company was receiving special treatment. Aburizal Bakrie, head of the clan although officially no longer chief of the holding company, having taken up the role of minister for welfare, was a key financier of president Susilo Bambang Yudhoyono’s 2004 campaign.

Mulyani moved to lift the suspension of trading in Bumi resources, only for the ruling to be overturned by an unnamed official in the government said by a source quoted in the Jakarta Post to be at a higher level than Mulyani. A spokesman for the president popularly known as SBY has said that he had no involvement in the decision.

Zealous campaigner

Rumours – denied by a spokesman for the government – circulated that Mulyani had threatened to resign over the issue. She is a zealous campaigner for reform, a woman who sacked the entire customs department in an effort to deal with its notorious corruption, and has reformed her own ministry. This has delighted debt bankers in Asia, who say ministry officials have become much more professional and transparent. Mulyani has also repeatedly refused to allow the vested interests of business to interfere with policy.

It is this newfound spirit of professionalism that has enabled her debt team to be among the most successful in Asia: the $1.9 billion raised by the January issuance of 10- and 30-year bonds amounts to almost a quarter of all funds raised by sovereigns in the region this year. Debt bankers who have worked with her say that the key to her success is a consultative approach. "She has done a very good job defending the interests of Indonesia with integrity and works really well with everybody," says one. "She has that ability to get given a load of documents on an issue, digest them thoroughly and then come to the point and really understand the topic."

As a former director for Asia at the IMF, Mulyani has a background in working with international financial bodies that will stand her in good stead as she negotiates at such meetings as the November G20 summit in Washington for help for Indonesia and its neighbours. She is the face of the new Indonesia, say her fans in Jakarta, the embodiment of the reformers who would see the country emerge from its reputation for corruption and cronyism to become a regional leader.

Back in the meeting room at the ministry the clock reaches 11am and there’s still no sign of Mulyani. The previous evening she had accepted an award from Euromoney for outstanding contribution to finance in recognition of her being acclaimed as minister of finance of the year for the second time. She had then delivered a long, entertaining and bilingual speech to a gathering of investors, chief executives and politicians – including the central bank governor – urging reform and quoting the film Spiderman’s maxim that "with great power, comes great responsibility".

Back to the waiting room

It transpires that her responsibilities have called her away – Mulyani is meeting the president, and won’t be available at all today. A worried-looking woman in a pale headscarf expresses her regret; someone should have called, she says, to let you know the meeting was cancelled.

A journalist is from time to time forced to concede that he or she is less deserving of a contact’s time than a president but there is something in the way the whole affair is handled that speaks to the very problems Mulyani hopes to tackle. Her staff are evasive and difficult to reach, promising to call and then disappearing for a week only to be replaced by a new person with no knowledge of previous discussions. In the weeks that follow the cancelled interview, Mulyani travels the globe attending meetings of her international peers as the global financial community attempts to decide on a joint response to the crisis. Back home, more trouble surfaces as her stand-in, minister for state enterprises Sofyan A Djalil, is revealed to own 1.1 million previously undeclared shares in Bumi at a time when the company might be bid on by state-owned firms that his office oversees. Sofyan rebutted accusations of a conflict of interest, being quoted in the Jakarta Post as saying: "There is no [conflict of interest] in this case. It has never influenced anything. What’s forbidden is for me to make a policy that benefits me personally, something that I have never done."

At the same time as this latest twist in the Bakrie saga developed, the Indonesian rupiah fell to a seven-year low of 11,950 to the dollar and the central bank moved to enact new capital controls in an effort to shore up the currency. The new rule, which states that currency purchases of $100,000 or more a month will have to be supported by underlying transactions, follows earlier measures to defend the rupiah, including a call for Indonesia’s banks to repatriate their dollar holdings.

Euromoney pursues the interview by email with yet another of Mulyani’s representatives as she flies from the G20 meeting in São Paulo to Washington, but there is no response until a message comes late on a Friday night but early morning on the east coast of the US where Mulyani is preparing for the morning’s negotiations. Be ready in two hours, the message reads.

Three and a half hours later, the call comes through. Mulyani sounds somewhat distracted and it’s clear she wants to get off the phone and on to day’s real business. However, her answers come quick and clear and for someone known as a technocrat with no domestic political powerbase she is a skilled speaker with a politician’s knack for diverting the conversation towards her key talking points.

The rupiah has been the hardest-hit currency in the region over the past month or so, and the central bank has announced further capital controls as a way to try to support the currency. What role do you see for the ministry of finance in these efforts?

We’re all aware that the global situation is difficult; we’re not dealing with a normal situation here. We have to protect the interests of the economy and Indonesia in general but I don’t support the idea that countries should fend for themselves. As a country we’re quite susceptible to the exposure on the currency that you’re talking about and we are looking at all possible policies. At the moment, capital is tending to flow from developing countries back to the US, and in this situation any country can face difficulty.

So we’re trying to regularize and normalize flows and control the movement of currency by both residents and non-residents. If a transaction is supported by appropriate documents and a balancing underlying transaction then we know that it should be supported. We don’t want people to not trust our efforts to safeguard the currency and the economy.

How is the mood at the G20 meeting? What progress has been made?

We’re still debating at a very technical level what the right format for the statement is. The level of expectations is very high, but we still need to come up with specifics. We’re focusing on three areas: taking immediate action to restore confidence to financial markets; considering the strong aspirations signalled by some European countries about changing and increasing regulation so that no institutions or instruments are outside appropriate control and monitoring, without hindering market dynamics too much; and continuing the discussion among international financial institutions such as the IMF and G20 as to how these mechanisms can serve better. Now that the global economy is so closely knit, improving it will require action beyond sovereign-level statements.

Presumably there’s a sense of urgency behind the negotiations, as the market is waiting for what G20 comes up with?

Well, we don’t want to disappoint. We’re debating how specific the statement should get because we need to ensure that this is not the last G20 meeting.

And you must be feeling some pressure in that Indonesia is the sole representative of Asean at the meeting?

Yes, we try to strike a balance between our needs and those of Asean. We’re the biggest country in the region and are a middle ground, between the very advanced economies such as Singapore and the less-developed ones such as Laos or Myanmar. The region’s exposure to the crisis is very diverse: as the most open economy, Singapore is very quickly exposed, whereas the developing economies are more fragile overall.

Our role is to reflect the situation faced by these developing economies, and we’re lucky in a way in that we can afford to have a slightly expansionist policy. We need to restore confidence to the bond markets first but we will be visiting the international credit market as long as we can secure financing that’s reasonable.

Indonesia had some very successful bond issues this year. But at what spread does debt funding from the international market start to look unattractive for Indonesia?

Well, you need to look at this question in terms of our ability to fund fiscal policy. The size of the deficit at the moment is equal to around 1% of nominal GDP, in other words around $5.5 billion. Traditionally, we’ve funded half of that from bilateral and multilateral lenders, and half from the bond markets. So we need around $2 billion to $2.5 billion in a normal, non-disrupted year. We’ve been enjoying some of the best spreads recently, in 2006 and 2007 paying less than 200 basis points over treasuries. Currently the market is very distorted, so that price looks unrealistic now. We’re going to have to be realistic and look for windows of opportunity.

The Indonesian press has been full of outrage at the way the Bakrie group has been perceived as being bailed out again. There has been much speculation about disagreements between the head of that firm and yourself, one in favour of a government bailout of corporates and one of you not. What’s your comment on the situation?

I guess as a policymaker at the top level I fully understand that this global shock took many of our companies by surprise. These companies need to be very vigilant, to be responsible and accountable, especially if they are public companies. This is the theme we are trying to establish. I think in all countries in the world the role of interest groups from the private sector in the decision-making process is a factor. Without sacrificing our principles we’re trying to strike the right balance.

But when you talk about restoring credibility to the government, to regulation and control, isn’t that difficult when you have situations like the present in which your stand-in has admitted to previously undisclosed shareholdings in Bumi at a time when he’s overseeing companies that might want to join the consortium bidding for Bumi?

Well, this is an interesting case of testing the principle of a conflict of interest. The president is very keen on honouring good governance and avoiding conflicts of interest, but the political reality needs to be managed. I think that the government can overcome situations like this without sacrificing its principles. Remember that people in other countries face the realities of interest groups.

It has been reported by some sources in Jakarta that you tendered your resignation to the president when it appeared that you would be overruled on the decision to lift the suspension on the trading of shares in Bumi on the exchange. Is there any truth to those rumours?

Well, I can say that this government is working together nicely and we want to continue working together. I’m the minister of finance in charge of handling this crisis, and that’s my commitment.

Do you have any political ambitions of your own? At the stakeholders’ day in Jakarta at the end of October you said that you had only one year left as a finance minister. What happens next?

I am not affiliated to any political party. My statement was purely that the term of this government is five years, so I will serve until the end of that term on October 24. Beyond that I am committed to my country in full – my duty is to manage the economy with my best efforts. I am what I am.