Yudhoyono Taps Finance Minister to Lead Indonesia Central Bank

Feb. 23 (Bloomberg) -- Indonesian President Susilo Bambang Yudhoyono nominated Finance Minister Agus Martowardojo to replace Darmin Nasution as central bank governor, Speaker of the House of Parliament Marzuki Alie said.

Yudhoyono proposed Martowardojo as the only candidate in a letter to parliament late yesterday, Alie said by phone today.

The president’s choice heralds a change in leadership at a time when the central bank is grappling with a weakening currency, a widening current-account deficit and inflation stemming from power tariff increases and higher wages. If Martowardojo is approved by the parliament, it would be the second time Yudhoyono replaced his finance minister in his second term.

“I am really surprised to learn that President SBY nominated Martowardojo for the next Bank Indonesia Governor,” Fauzi Ichsan, senior economist at Standard Chartered Bank Plc said by phone today. “If Martowardojo leaves the finance ministry, SBY would have three finance ministers in his second term. It is not good for the sustainability of Indonesia’s fiscal policy.”

The parliament’s finance committee will conduct a so-called fit-and-proper test on the candidate before he can be approved by lawmakers in a plenary meeting. Yudhoyono previously nominated Martowardojo as central bank governor but the nomination was rejected by the previous finance committee.

“Parliament will decide whether we will receive Martowardojo’s nomination for the next governor,” Harry Azhar Azis, vice chairman of the finance committee, said by phone today. “We realize that the previous finance committee rejected Martowardojo’s candidacy for Bank Indonesia Governor. This time it will depend on the fit and proper test.”

Career

Martowardojo, 57, started his career at Bank of America Corp., according to the Finance Ministry’s website. He was president director of PT Bank Mandiri, the country’s largest lender by assets, before becoming finance minister

Nasution, 64, assumed the central bank governor post in September 2010 after more than a year as acting governor. He has a doctorate in economics from University of Paris, Sorbonne, France, and is the 14th governor in the central bank’s six- decade history. He became acting governor after Vice President Boediono resigned in May 2009 to become Yudhoyono’s running mate in the last presidential election.

During Nasution’s tenure, one of his deputy governors was the target of probes into a 2008 bailout of PT Bank Century. Budi Mulya was under investigation by the state auditor regarding a “personal” 1 billion rupiah ($103,000) loan he obtained from the former owner of Bank Century. The deputy governor was relieved of his role as head of monetary policy operations and his term ended last year.

Reference Rate

The central bank this month kept its reference rate unchanged for a 12th meeting at a record-low 5.75 percent. The central bank has stepped up intervention to support the rupiah and narrow the gap between local and overseas prices, Hendar, executive director for monetary policy at the central bank, said in a Jan. 28 interview.

Bank Indonesia may take action on its benchmark rate if the currency’s depreciation causes inflation to accelerate, Deputy Governor Hartadi Sarwono said last month. The economy expanded 6.11 percent last quarter, the slowest pace in more than two years.

“Leadership and continuity are important for BI,” said President Director Bank Danamon Indonesia Henry Ho in Jakarta last week. “So far, the central bank has done a very good job, working with the banks, working with many issues in the economy. We want to see Indonesia continue to grow.”

--With assistance from Berni Moestafa in Jakarta. Editors: Stephanie Phang, Greg Ahlstrand