Basri Made Indonesia Finance Minister Tasked to Guard Budget

Indonesia named Chatib Basri finance minister today as the government prepares to raise the price of subsidized fuel and curb a current-account deficit that has hurt the rupiah.

Basri must ensure fiscal policy stays prudent, President Susilo Bambang Yudhoyono said as he announced the appointment in Jakarta today. The current chairman of the Investment Coordinating Board, Basri will be sworn in tomorrow and replaces Acting Finance Minister Hatta Rajasa. The former finance chief, Agus Martowardojo, is set to become the central bank governor.

“He has a good track record and he’s not a politician so I think that puts him in good stead to try and implement some changes,” said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore. Basri’s priorities would be to convince Parliament of fuel-subsidy cuts, and improve disbursement of budgeted government spending, he said.

Yudhoyono is reshuffling his top policy-making team as Southeast Asia’s largest economy grapples with slowing growth and the worst performing currency in Asia after the yen in the past year. The president has said he plans to increase subsidized-fuel prices to curb the government’s energy costs after Parliament approves compensation programs for the poor.

Public Protests

Since protests derailed plans to raise subsidized-fuel prices in 2012, officials have explored ways to revamp budget spending in a country where riots spurred by soaring living costs helped oust dictator Suharto in 1998.

Surging oil imports have strained government finances and led to a current-account shortfall. Delays in curbing fuel subsidies have already cost the country a positive outlook on its sovereign credit rating at Standard & Poor’s.

Basri, 47, will oversee a revised budget, which Rajasa said last week he had signed and would be presented to Parliament. The government intends to raise subsidized gasoline prices to 6,500 rupiah ($0.67) a liter, and subsidized diesel to 5,500 rupiah per liter, Planning Minister Armida Alisjahbana told reporters on May 13.

There will be “no honeymoon period as budget discussions are of high urgency,” said Helmi Arman, an economist at Citigroup Inc. in Jakarta. “The new finance minister will within days have to kick start mid-year budget discussions with parliament. This is important as the president has linked the magnitude of any fuel price hike to the approval of compensatory subsidies put forth in the draft 2013 budget revision.”

Trade Deficit

Without a reduction in fuel subsidies, the cost may rise to 297.7 trillion rupiah this year from the current target of 193.8 trillion rupiah, Yudhoyono has said. Indonesia spent 211.9 trillion rupiah on fuel subsidies last year, spurring demand for energy products that contributed to a record trade deficit in October.

“Amid the global economy that is still full of volatility, we must maintain our fiscal position well,” Yudhoyono said today. “That’s why the prudent fiscal policy must be maintained.”

Indonesia’s benchmark stock index, which has gained about 21 percent this year, fell after Yudhoyono opted for an acting finance minister to replace Martowardojo last month.

The Jakarta Composite Index gained 1.4 percent today. The rupiah was little changed at 9,758 per dollar, according to prices from local banks compiled by Bloomberg.

Basri was special adviser to former finance minister Sri Mulyani Indrawati from 2006 to 2010, according to his profile on the Investment Coordinating Board’s website.

He has a doctorate in economics and a masters in economic development from Australian National University, according to his website.

“The finance minister must provide back-up policy, policy support so that investment in Indonesia continues to rise,” Yudhoyono said today. “There are fiscal policies that are really driving investment well, whether it’s fiscal incentives or other policies.”

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