NEW CENTRAL BANK GOVERNOR NOMINEES - NO INSIDERS

UNCLAS SECTION 01 OF 02 JAKARTA 000355 SIPDIS SENSITIVE SIPDIS DEPT FOR EAP/MTS AND EB/IFD/OMA TREASURY FOR IA-SETH SEARLS SINGAPORE FOR SUSAN BAKER COMMERCE FOR 4430-BERLINGUETTE DEPARTMENT PASS FEDERAL RESERVE SAN FRANCISCO FOR FINEMAN DEPARTMENT PASS EXIM BANK DOJ/OPDAT FOR JOHNSON/LEHMANN/ALEXANDRE DOJ/AFMLS FOR SAMUEL E.O. 12598: N/A TAGS: EFIN EINV ECON PGOV PINR ID SUBJECT: NEW CENTRAL BANK GOVERNOR NOMINEES - NO INSIDERS ¶1. (SBU) Summary: President Yudhoyono nominated two outsiders to replace outgoing BI Governor Burnhannudin Abdullah, whose five-year term ends May 17, 2008. Abdullah has been named in a corruption case involving payments to Parliament to pass banking legislation in 2003/4. Raden Pardede, an economist who has held several senior positions in the Government of Indonesia (GOI) is favored by fellow economists. Agus Martowardojo is President Director of state-owned Bank Mandiri, Indonesia's largest bank. The Parliament (DPR) must make a decision by March 15 on the candidates but has the option of rejecting both and requesting a new nomination. End Summary. New BI Governor Nominees: No Insiders -------------- ¶2. (SBU) On February 15, President Yudhoyono (SBY) sent two names to the DPR as candidates for BI Governor for the next term, neither of them BI insiders such as the seven current Deputy Governors. Media commentators and financial sector watchers believe that SBY named outsiders because of the ongoing corruption investigation against BI officials including Governor Abdullah (septel). ¶3. (SBU) Raden Pardede is a respected macro-economist, Chairman of the Executive Committee of Indonesia's Financial Stability Forum (not to be confused with the international one) and Vice President of the State Asset Management Company (PPA). PPA, the more transparent successor organization to the Indonesian Bank Restructuring Agency (IBRA),has the job of divesting shares and real property that came into GOI hands after bank bailouts in the 1997/98 financial crisis. PPA sunsets in 2009. ¶4. (SBU) The other candidate, Agus Martowardojo, took over as President Director (CEO) of Bank Mandiri after KPK's information led to the conviction of Mandiri's previous CEO, Eddie Neloe of corruption. Martowardojo has done a good job at Mandiri, cleaning up non-performing loans (NPLs) and improving management according to the International Monetary Fund (IMF) and many banking sector watchers. While academic economists prefer Pardede, banking contacts believe that Martowardojo is the best choice, as the proven manager of a large organization. (See biographic information below.) Parliament Not Pleased -------------- ¶5. (U) Several key members of the Parliament have indicated their disapproval of both of SBY's nominations. BI insiders, according to them, are more market friendly. Some analysts see SBY's decision as "insulting for BI as an institution." Parliament will officially decide whether to accept or reject the candidates by March 15. By Law No. 3/2004 on Bank Indonesia, Parliament has the right to decline candidates nominated by the President and would give the President one more chance to submit other candidates (one DPR member explicitly mentioned this possibility to us). If the Parliament again disapproves the nomination, it will appoint a former Governor or one of the Deputy Governors. Abdullah Reasonably Good Performance as BI Governor -------------- ¶6. (SBU) Though sometimes criticized for poor market communication, Abdullah has been generally well-regarded. Under his supervision beginning in May 2003, BI has shepherded the economy toward strong growth with reasonable price stability, especially in the face of oil price shocks. BI now has the highest foreign exchange reserves in its history and even repaid outstanding IMF loans. Bank performance and supervision has been sound. He has earned the trust of most commercial bankers. While some monetary policy decisions have been late (as in the 2005 response to high oil prices) and others regarded as less-than-fully independent (as in the December 2007 interest rate cut),Abdullah was generally liked and well respected by bankers and market participants. One Indonesian senior banker said that he has been one of the most credible BI Governors in recent history. Another Indonesian banking contact said in despair, "This is Indonesia, the good ones get hurt and the bad ones JAKARTA 00000355 002 OF 002 stay on." Why Force Abdullah Out? -------------- ¶7. (SBU) One rumor from two Embassy contacts (although heavily discounted by others) is that SBY was considering Abdullah as a possible running mate in 2009. Some say Golkar insiders, including Kalla supporters, did not want SBY to name BI Governor Abdullah as a running mate for 2009, and thus ensured damage to Abdullah both in his current position, and as a possible future Vice Presidential candidate. The motivation behind the investigation, which originated BPK, is also bit murky. Dr. Anwar Nasution, head of the BPK who first publicized the information against BI, is a former Deputy Governor of BI himself. A Harvard-trained economist, he has been unhappy in his current job. Some have speculated that Nasution "wanted back in" to BI so sought to tarnish the current lot or simply had an axe-to-grind with former colleagues. Bio for Raden Pardede -------------- ¶8. (U) Dr. Pardede is a prominent Indonesian economist. He has held senior executive positions at PT Danareksa, a major Indonesian investment bank, and has served as a consultant to the World Bank, Asian Development Bank and various Indonesian Government departments. Raden Pardede is Vice President Director of the State-Owned Asset Management Company or PPA (2004 to the present), on the Board of Commissioners of Bank Central Asia (2004 to the present),Chairman of the Executive Committee of Indonesia's Financial Stability Forum, Chairman of Finance for Indonesia's Infrastructure Development Team (2004 to the present),member of the macroeconomic policy team to the Minister of Finance (2006-present), and Advisor to the Coordinating Minister of Economic Affairs (2004-2005). ¶9. (U) His earlier managerial positions included Executive Director and Chief of Economist at PT Danareksa (2002-2004),Deputy Coordinator of Assistance Team of Minister of Finance Republic of Indonesia (2001-2004),Chief Economist/Division Head at PT Danareksa (1995-2002),Founder of Danareksa Research Institute (1995),World Bank Consultant (1994-1995),Asian Development Bank Consultant (2000-2001),Staff of Planning in the Department of Industry (1985-1990),Process Engineer at PT Pupuk Kujang/Fertilizer Industry (1985),Guest Lecturer at the Institute for Technology in Bandung, the University of Indonesia and Business Institute Indonesia. Pardede has written more than 50 articles in English and published in several International Journals and Domestic Media. A sought-after speaker for international seminars, he is active in speaking on macro and micro-economic issues. He holds a Bachelor's degree in Chemical Engineering from Bandung Institute of Technology and a PhD in Economics from Boston University. Pardede is a Christian. Bio for Agus Martowardojo -------------- ¶10. (U) Martowardojo is currently the President Director of Bank Mandiri (appointed in May 2005) replacing Eddie C.W. Neloe who was involved in alleged corruption case. After graduating from the Economic Faculty of University of Indonesia in 1984, Martowardojo started his banking career at Bank of America and worked there until ¶1986. Between 1986-2002, he held several key position in Indonesian domestic banks; Niaga Bank (1986-1994),Bumiputera Bank (President Director; 1995-1998),Export Bank (President Director; 1998) and Permata Bank (President Director, 2002 - 2005). In 2002 he was also the chief advisor and the vice chairman of Indonesian Banking Restructuring Agency (IBRA). Martowardojo took several banking and management courses, at the State University of New York, Stanford University, and the Institute of Banking and Finance (Singapore). Martowardojo was born in Amsterdam in 1956 and is a Muslim. HUME