FACTBOX-Indonesia reforms at risk with Fin Min's departure

JAKARTA May 6 (Reuters) - Indonesia's finance minister, Sri Mulyani Indrawati, will move to the World Bank as a managing director on June 1, raising questions over the pace of reform in Southeast Asia's biggest economy. [ID:nJAK189652]

Investors will pay close attention to the appointment of her successor as a sign of President Susilo Bambang Yudhoyono's commitment to reform and potential to lift GDP growth from 4.5 percent in 2009 to over 7 percent in 2014. [ID:nJAK140547]

Here are the main areas of reform that could be affected:

CIVIL SERVICE

Overhauling Indonesia's graft-ridden and bloated bureaucracy is among the most important elements of reform to improve efficiency, implement policy effectively, and curb corruption, but with Indrawati's departure, other ministers may be less inclined to take up the challenge and cross the anti-reformers.

As finance minister, Indrawati introduced merit-based incentive structures within her own ministry, including new hiring practices and salary raises to reduce the temptation to accept bribes, and other ministries were supposed to follow suit.

Since the Suharto era, the civil service has been a Golkar Party stronghold, and Indrawati's attempts to reform it have been strongly resisted by Golkar's leadership.

Vice President Boediono and Kuntoro Mangkusubroto, who heads the Presidential Delivery Unit, both back bureaucratic reform, but other ministers may now be wary of pursuing this goal and risking Golkar's wrath.

TAX AND CUSTOMS

Indrawati drove an overhaul of the tax and customs offices, traditionally hotbeds of corruption, in a bid to increase state revenues and reduce Indonesia's reliance on the capital markets to fund the budget deficit.

With her departure, the question remains whether her successor will have the clout to push through further reforms or whether there is a risk of backsliding or stasis.

"It will unwind. The pressure is off for the shake-up of the tax department," said Kevin O'Rourke, a Jakarta-based political risk analyst.

Indrawati raised salaries, fired corrupt officials, and introduced more transparent work practices including open plan offices and computerised records. But she hasn't been able to eradicate graft, and recently announced further reforms including a proposal to install CCTV cameras in tax office rooms and a shake-up of the tax tribunal.

Under Indrawati, the tax office has cracked down on alleged tax evaders including Bumi Resources (BUMI.JK), run by the family of Golkar party chief Aburizal Bakrie.

That and other investigations could now stall, analysts say, because her successor is unlikely to pursue such cases as vigorously. In Bakrie's case, that could mean the group has more cash at its disposal to pursue acquisitions.

ENERGY AND MINING

Indrawati's departure raises questions about the commitment to cut expensive energy subsidies and raise electricity tariffs.

Reducing fuel subsidies is a sure way to create political enemies -- something a new and politically inexperienced finance minister may want to avoid - while hikes in electricity tariffs are unpopular but necessary to address the enormous operating loss suffered every year by state power firm PLN.

Her departure may also affect a long-running feud over who buys shares in a lucrative copper and gold mine run by Newmont Mining Corp (NEM.N). Bumi has been eyeing that deal for some time as it expands its mining interests, whereas Indrawati had been open to finding other buyers. [ID:nJAK365046]

SOCIAL SPENDING

Indrawati channelled budget funds away from ministries and toward direct social spending such as successful community programmes, health insurance and school funding.

Her departure may pave the way for ministries to reverse the measures, and have funds disbursed via the ministries instead which increases the risk of corruption.

(Editing by Sara Webb)