A Dilematic Situation over Calls for Dismissing Sri Mulyani and Boediono

Among the various state and private sector firms on the list was a coal-mining company controlled by Aburizal Bakrie, a tycoon and politician who has clashed with Indrawati and who is seen as the driving force behind efforts to remove her. Bakrie isn’t the only tycoon feeling the heat from the tax department. Last month, Yudhoyono asked police to help the tax department pursue dodgers and there are signs that other tax cases which had languished are being pursued more aggressively.

While the Bank Century case is unlikely to have a short-term impact on economic growth, a slower reform push would have a longer-term impact. For years, Indonesia has lagged emerging market giants China and India in terms of its growth rate.

Investors were reluctant to stump up the billions of dollars required to develop infrastructure, including ports and tollroads, or boost the natural resources and manufacturing sectors, because of Indonesia’s reputation for corruption, red tape, and legal uncertainty.

These are the main areas that Yudhoyono and his reformers have started to address. The reforms are not only intended to attract investment, but should also reduce the overall cost of borrowing by improving Indonesia’s chances of achieving an investment grade credit rating.

Yudhoyono also reversed Indonesia’s reputation as a political basket case prone to repeated bouts of instability. While few analysts or investors expect either Indrawati or Boediono to lose their jobs over Bank Century, they recognise that attacks on the reformers are likely to continue.

“Investors are clearly worried that domestic politicians are more interested in fighting over the spoils of power, than in supporting the reform process,” said one long-term U.S.-based investor in Indonesia who declined to be quoted by name.

“With the president’s leadership, Sri Mulyani and Boediono have been vital to ensuring the benefits of Indonesia’s strong growth are more fairly shared by all Indonesians. Dismissing either reformer would lead investors to concerns that Indonesia was returning to crony capitalism, which was certainly very painful for investors and most Indonesians — at least those who weren’t tycoons or politically well-connected, or both.”