* Focus on replacement for commitment to reform
* Move could be blow for anti-graft campaign
* Indrawati wooed by World Bank, not pushed out - source
(Recasts, adds details, quotes from president)
By Sara Webb and Janeman Latul
JAKARTA, May 5 Indonesian Finance Minister Sri
Mulyani Indrawati has quit after a bruising battle with
anti-reformists in what could be a major blow to a crackdown on
graft and tax evasion in Southeast Asia's biggest economy.
Indrawati, 47, has been named a managing director of the
World Bank Group. The appointment shows the growing clout of
emerging economies but her decision to move also underscores
the difficulty Indonesia's reformers face in their bid to
address corrupt practices and decades of poor governance.
Indrawati had come under increasing attack from political
opponents who were threatened by her clean-up campaign,
particularly over the past 18 months.
"She's fed up with the political pressures," said a close
friend of Indrawati's, who asked not to be identified, adding
the World Bank had approached Indrawati several months ago.
President Susilo Bambang Yudhoyono told a media conference
Indrawati's move was a loss to the nation. "What is clear is
that reform in finance, tax and customs will continue," he
Indonesian bond yields jumped to three-week highs after
news of Indrawati's decision to quit, which raised fears the
pace of reforms in Indonesia could slow.
"The foot might be taken off the reform accelerator so it
is a significant loss to the team that is in place over there,"
said Kenneth Akintewe, a bond fund manager at asset manager
Political analysts agreed. "I suspect she is disillusioned
with firstly, SBY's failure to strongly support her and
secondly, the continuing attacks upon her integrity by
parliamentarians," said the Australian National University's
Palace officials were quick to say Indrawati had not been
pushed out but some analysts blamed the president for not being
outspoken enough in his support of Indrawati and her reforms.
Analyst Nick Cashmore, head of CLSA in Indonesia, said
Indrawati's loss before her five-year term was up was "not good
for Indonesia". "It shows that all these undercurrents are
gathering pace," he said.
Opponents criticised Indrawati for bailing out Bank Century
after the 2008 financial crisis, a decision backed by reformist
vice president Boediono. A parliamentary inquiry, seen as an
attempt to discredit the reformist pair, dragged on for months.
Investors will be watching who is appointed in her place
for a signal on where the reform programme is headed. Yudhoyono
vowed the next finance minister would continue his government's
focus on "macroeconomic and fiscal policies which are prudent".
Chief Economic Minister Hatta Rajasa will run the portfolio
until a replacement is appointed, presidential spokesman Julian
Pasha said. Indrawati starts at the World Bank post on June 1.
Rajasa is well-known for his political skills. Indrawati
has a doctorate in economics and is a former International
Monetary Fund executive director. [ID:nSGE64404P]
Investors have been big buyers of Indonesian assets in the
past 18 months, largely attracted by its pace of reform and
liberalisation and the prospect of a surge in demand for its
vast natural resources as the global economy recovers.
Local financial markets fell after the announcement of
Indrawati's move, but analysts said the weakening in the rupiah
IDR= to 9,090 per dollar from 9,030 and a 3 percent drop in
the stock market .JKSE reflected broader investor concerns
about emerging markets and risk related to the euro zone.
"Hopefully it is a short-lived (reaction), but it all
depends on who replaces her," said Destry Damayanti, an
economist at Mandiri Sekuritas in Jakarta. "What is needed is
someone who is a professional, someone who is not politically
Likely candidates include Anggito Abimanyu, the head of the
ministry's Fiscal Policy Agency and Chatib Basri, an academic
and special adviser to the finance minister. Also in the mix
are Raden Pardede, an economist and former head of the state
asset management company, and Agus Martowardojo, president
director of Indonesia's largest lender Bank Mandiri (BMRI.JK).
Indrawati's departure comes when Indonesia is still without
a governor for Bank Indonesia, the central bank. Darmin
Nasution, senior deputy governor, has been acting governor
"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 Citibank economist Johanna Chua.
"Nonetheless, we think despite her departure, Indonesia's
track record of prudent fiscal policies will likely remain
intact," she said in a research note.
Indrawati and Boediono took a tough public stance against
corrupt politicians, officials and businessmen in a country
that ranks among the most corrupt in the world.
Their reforms, for example in the tax and customs offices,
led to improvements in revenue collection but much more remains
to be done to clean up the civil service, including the police
Indrawati raised salaries at revenue departments, fired
corrupt officials and introduced more transparent work
practices, including computerised records. She also sent
investigators from the anti-corruption commission on surprise
Tax evasion remains a serious problem. There are only 16
million registered tax payers in a country with a population of
about 240 million. [ID:nJAK441622]
(Additional reporting by Gde Anugrah Arka, Muklis Ali and
Sunanda Creagh in JAKARTA and Joanne Allen in WASHINGTON;
Editing by Paul Tait)