Indonesia president faces challenges in new term

JAKARTA Mon Oct 19, 2009 12:34pm EDT

Indonesian President Susilo Bambang Yudhoyono takes the stage for a speech at the John F. Kennedy School of Government at Harvard University in Cambridge, Massachusetts September 29, 2009. REUTERS/Brian Snyder

Indonesian President Susilo Bambang Yudhoyono takes the stage for a speech at the John F. Kennedy School of Government at Harvard University in Cambridge, Massachusetts September 29, 2009.

Credit: Reuters/Brian Snyder

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JAKARTA (Reuters) - Indonesian President Susilo Bambang Yudhoyono is to be sworn in on Tuesday for a second term with an agenda headed by the need to enact bureaucratic reforms, fix infrastructure, amend labor laws, and attract investment.

Yudhoyono, re-elected in July with a strong mandate for change, is likely to announce his cabinet line-up soon and has already interviewed candidates for key positions.

Investors want to see more technocrats and professionals, rather than career politicians with vested interests and little expertise as a pointer to Yudhoyono's commitment to tackling serious problems.

"There's a big opportunity now. Investors, firms, are clearly looking at Indonesia much more closely than before," said Robert Prior-Wandesforde, regional economist at HSBC.

"It's finally got political stability, a good president, and a good economic team. Indonesia's gone through a re-rating, but there's clearly a lot more work to do."

Despite some progress during Yudhoyono's first term, Indonesia still gets low marks in terms of the ease of doing business, ranking 122nd out of 183 economies in the Doing Business report produced yearly by the World Bank and the International Finance Corporation.

Indonesia's central bank expects the economy to grow 4-4.5 percent this year, faster than many neighbors, while Jakarta stocks have surged 85 percent this year and the rupiah currency has risen 16 percent against the dollar.

"If Indonesia has the same political risk profile as Thailand, Malaysia and the Philippines, why not invest in a country with better GDP growth," said Desmond Tjiang, of Fortis Investments, referring to Indonesia's faster economic growth.

Here are some of issues Yudhoyono needs to address:

* CORRUPTION

The Corruption Eradication Agency and Corruption Court have been at the forefront of Indonesia's efforts to curb graft, but investors say Indonesia must continue to take a tough stance on corruption and cannot afford to allow any backsliding.

* REFORM OF BUREAUCRACY & KEY MINISTRIES

Reform of the bureaucracy and key institutions must accelerate. Finance Minister Sri Mulyani Indrawati, expected to keep her post, has made sweeping reforms in her ministry, setting an example for others.

"The reforms so far have only affected a tiny fraction of government ministries," said Kevin O'Rourke, Jakarta-based political risk analyst. "It needs a government-wide effort that takes place at a higher level."

Those reforms must also be extended to the attorney-general's office, police, and judiciary, as few foreigners or Indonesians have any faith in the legal system.

* LABOR LAWS

Yudhoyono needs to amend the tough labor market laws so that employers can hire and fire more easily.

Manufacturers and other investors have been put off by laws which protect employees' rights but provide little labor market flexibility, making it hard for companies to trim or expand their work force in response to changing demands.

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