VZCZCXRO7391
RR RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHJA #0720/01 1001049
ZNR UUUUU ZZH
R 091049Z APR 08
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 8613
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/USDA WASHINGTON DC
RUEHKO/AMEMBASSY TOKYO 1775
RUEHBJ/AMEMBASSY BEIJING 4897
RUEHBY/AMEMBASSY CANBERRA 2291
RUEHUL/AMEMBASSY SEOUL 4511
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 02 JAKARTA 000720 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
DEPT FOR EAP/MTS AND EB/IFD/OMA 
TREASURY FOR IA-SETH SEARLS AND JWEEKS 
SINGAPORE FOR SBAKER 
TOKYO FOR MGREWE 
COMMERCE FOR 4430/ 
DEPARTMENT PASS FEDERAL RESERVE SAN FRANCISCO FOR TCURRAN 
DEPARTMENT PASS EXIM BANK 
USDA/FAS/OA YOST, MILLER, JACKSON 
USDA/FAS/OCRA CRIKER, HIGGISTON, RADLER 
USDA/FAS/OGA CHAUDRY, DWYER 
 
E.O. 12598: N/A 
TAGS: EFIN EAGR ECON PGOV PINR ID
SUBJECT: NEW BANK INDONESIA CHIEF FACES TOUGH ENVIRONMENT 
 
REF: Jakarta 00355 
 
¶1. (SBU) Summary: Parliament's Finance Commission overwhelmingly 
approved the appointment of Coordinating Minister for Economic 
Affairs Boediono to fill the post of Bank Indonesia (BI) Governor. 
Analysts expect Boediono to maintain the central bank's strong 
record of prudent monetary policy and independence from political 
interference.  Boediono takes the reigns of the central bank in an 
increasingly difficult operating environment, as inflation surges, 
global economic conditions deteriorate, and the central bank faces 
corruption scandals. The appointment leaves a hole in the 
government's economic team and raises questions as to who will 
replace Boediono at the coordinating ministry.  End Summary. 
 
Boediono Approved as Central Bank Head 
--------------------------------------- 
 
¶2. (U) Parliament's Finance Commission XI approved the appointment 
of Coordinating Minister for Economic Affairs Boediono as central 
bank governor by a 45 to 1 margin.  Parliament had rejected the 
President's previous two candidates for the job, raising concerns 
about growing political tensions between the Parliament and the 
President (reftel).  Parliamentarians praised Boediono's knowledge 
of monetary affairs and policymaking experience, citing his current 
role as Coordinating Minister for Economic Affairs and his previous 
post as Minister of Finance.  Boediono also served as a senior 
official at BI during the 1990s. 
 
¶3. (U) Analysts expect the new Governor to maintain BI's strong 
record of prudent monetary policy and independence from political 
interference.  Observers also expect him to improve policy 
coordination on financial stability issues.  Boediono's image as a 
clean and competent government official will help restore the 
central bank's image in the wake of graft allegations leveled 
against the current Governor and other senior officials this year. 
With post-graduate degrees from the University of Pennsylvania and 
Monash University in Australia, Boediono enjoys a solid reputation 
as a technocrat and reformer both at home and abroad. 
 
Macroeconomic Pressures Mount 
----------------------------- 
¶4. (SBU) Boediono takes the reigns of the central bank as inflation 
surges and global economic conditions deteriorate.  Rising global 
food and oil prices have heightened concerns that BI may need to 
raise rates this year. CPI inflation now stands at 8.2% (YoY), above 
the 8.0% BI policy rate.  Yet higher interest rates would dampen 
domestic demand at the same time sluggish global growth constrains 
expansion of Indonesia's exports. The uncertainty surrounding U.S. 
financial institutions and markets has increased risk aversion 
toward emerging markets such as Indonesia, even though Indonesia's 
banking system is relatively healthy with little exposure to U.S. 
subprime mortgages.  Combined with lagging reform momentum in 
advance of the presidential and general elections in 2009, market 
analysts worry foreign and domestic investors may begin to retreat 
from Indonesia markets, putting downward pressure on the currency 
and reducing Boediono's ability to stimulate growth. 
 
Boediono's Departure Leaves Hole in Economic Team 
--------------------------------------------- ----- 
¶5. (SBU) Boediono's appointment ends speculation on who will run the 
central bank, but leaves a hole in the government's economic team. 
The role of Coordinating Minister for Economic Affairs is important 
to interagency policy coordination, a frequent problem in Indonesia, 
and to establishing overall economic policy.  Recent press reports 
claim that the President is considering placing Vice President Jusuf 
Kalla in the vacant post, giving him a dual role in the government. 
While Kalla enjoys strong support in Parliament, analysts worry that 
the frequent policy disputes between Finance Minister Sri Mulyani 
Indrawati and Kalla will increase interagency acrimony and undermine 
economic policymaking. Analysts also consider Minister Mulyani, in a 
dual role as Finance and Coordinating Minister, and Raden Pardede, 
who parliament rejected for the BI Governorship, as frontrunners for 
 
JAKARTA 00000720  002 OF 002 
 
 
the job. Other candidates for the position are largely 
businessmen-turned-politicians including Former Coordinating 
Minister for Economic Affairs Rizal Ramli, Ministry of Industry 
Official Fahmi Idris, Former Minister for Cooperatives and SMEs Adi 
Sasono, and Minister of Energy and Natural Resources Purnomo 
Yusgiantoro. 
 
HUME