Sri Mulyani, 47, will start June 1 as one of the Washington-based bank’s three managing directors, the highest rank under Zoellick, the World Bank said in a statement. Indonesia’s stocks tumbled after the announcement left it unclear who will be the next finance minister.
The selection highlights the rising global role of Indonesia, the fourth most-populous nation and a member of the Group of 20 emerging and developed countries. It may also affect Indonesia’s economic leadership, as Sri Mulyani was one of two candidates proposed last June to head Bank Indonesia, an appointment stymied by a parliamentary probe led by factions within the governing coalition and members of the opposition.
“The appointment is like a win-win solution,” said Purbaya Yudhi Sadewa, an economist at Danareksa Research Institute in Jakarta. The new job can help Sri Mulyani save “face here in Indonesia. She has been facing a lot of political pressure,” he said.
The Jakarta Composite Index fell 2.9 percent to 2,872.04 as of 3:08 p.m. local time, compared with a 1.9 percent decline for the regional MSCI Asia Pacific excluding Japan Index.
President Susilo Bambang Yudhoyono said he received Sri Mulyani’s resignation today and that the country is losing one of its “best ministers.” He didn’t name a replacement in the televised press conference.
“For the market the question is who will be her replacement,” said Putut Endro Andanawarih, a fund manager at Jakarta-based PT First State Investments Indonesia, which manages about $298 million in assets. “The questions are what will be the impact on policies.”
Yudhoyono’s administration has been credited with helping bring political stability to Indonesia, which has seen economic growth accelerate and inflation moderate in recent years.
The country’s benchmark Jakarta Composite Index of stocks has soared 62 percent in the past 12 months, the second-biggest gainer among 20 Asian indexes tracked by Bloomberg News, after Sri Lanka. The rupiah has been the region’s best-performing currency in that time, advancing 14 percent against the dollar.
Respect of Peers
Sri Mulyani “has guided economic policy” for Indonesia, “navigating successfully in the midst of the global economic crisis, implementing key reforms, and earning the respect of her peers across the world,” the World Bank said in its statement, which was released late May 4 Washington time.
Indonesia’s new finance minister should continue with tax, customs and financial reforms, Yudhoyono said today. Sri Mulyani’s resignation has been approved by the president and she will stay as finance minister until her World Bank tenure starts on June 1, presidential spokesman Julian Aldrin Pasha said.
Coordinating Economic Minister Hatta Rajasa could act as interim finance minister until the government appoints Sri Mulyani’s replacement, Johanna Chua, the Hong Kong-based head of Asian economic research at Citigroup Inc., said in a report today. One likely candidate for the finance role would be Anggito Abimanyu, head of the finance ministry’s fiscal policy agency, she said.
“My preference for a replacement is Darmin Nasution,” the central bank’s senior deputy governor, said Nusron Wahid, who is a member of the Indonesian parliament’s finance commission and a legislator from Golkar, the biggest party in Yudhoyono’s ruling coalition. “He’s prudent and can be accepted by the ministry’s bureaucracy.”
Sri Mulyani and Vice President Boediono, who was the last central bank governor, have been the target of an opposition campaign accusing them of abusing their authority during the 6.7 trillion-rupiah ($736 million) bailout of PT Bank Century in 2008, during the global financial crisis.
Yudhoyono has yet to fill another top post, that of central bank chief. Bank Indonesia, which hasn’t had a governor for almost a year, left its benchmark interest rate at a record-low 6.5 percent for a ninth consecutive month today as the rupiah’s strength helped keep inflation below 4 percent.
“Vacancies in two of the most important economic posts will raise some concerns about the credibility of macro policies and the pace of reforms,” said Citigroup’s Chua. “Nonetheless, we think despite her departure, Indonesia’s track record of prudent fiscal policies will likely remain intact.”
The Indonesian minister will replace Juan Jose Daboub, who will complete his four-year term June 30, overseeing 74 nations in Latin America, the Caribbean, East Asia and the Pacific, the Middle East and North Africa, the World Bank said. Daboub is a former El Salvador finance minister.
The last managing director that Zoellick appointed was Ngozi Okonjo-Iweala, a former Nigerian finance and foreign minister, in October 2007. The third managing director, Graeme Wheeler, said in January that he will leave the institution by the end of next month. Wheeler worked at the New Zealand Treasury before joining the Washington-based development bank.