News and Finance

Indonesia's parliament approved top economic minister Boediono as the nation's 13th central bank chief, as Southeast Asia's largest economy grapples with accelerating inflation and slowing growth.

Boediono, 65, will succeed Burhanuddin Abdullah, whose five-year term expires on May 17. Boediono, the coordinating minister for the economy, was endorsed as the next governor by 45 of the 46 legislators in a parliamentary panel, lawmaker Tjahyo Kumolo told reporters in Jakarta today. The house will confirm the appointment at a plenary session by April 10.

Boediono, who earned his doctorate in economics from the University of Pennsylvania in 1979, will have to balance the risk of slowing growth with inflation at an 18-month high. As finance minister for three years to 2004, Boediono helped ease inflation by reducing money supply and the budget deficit. President Susilo Bambang Yudhoyono is betting Boediono can slow price gains before general elections next year.

“You can't pressure him to cut rates for the sake of growth,'' said Fauzi Ichsan, chief economist at Standard Chartered Plc in Jakarta. “He will focus on inflation.''

Consumer prices increased 8.2 percent in March from a year earlier, outpacing the central bank's key rate. Bank Indonesia is targeting inflation below 6.5 percent in 2008. The World Bank last week cut this year's growth forecast for the $364 billion economy to 6 percent. Gross domestic product expanded 6.3 percent in 2007.

Credibility, Stability

Boediono, whose doctoral thesis was titled “Econometric Models of the Indonesian Economy for Short Run Policy Analysis,'' was appointed the coordinating minister for the economy in December 2005. In a presentation to lawmakers in Jakarta today Boediono listed credibility and stability among the most important attributes of the central bank.

A former central banker, Boediono became finance minister in August 2001, when inflation was 12.2 percent guaranteed payday loans. Price gains eased to 4.6 percent in February 2004, the slowest pace in almost 4 years.

“Some aspects of the 2001-2003 policy will be repeated,'' Sin Beng Ong, an economist with JPMorgan Chase & Co. in Singapore, said in a note to clients. “This policy would also likely be complemented by allowing the currency to appreciate to bring inflation expectations down.''

The rupiah has declined 1.5 percent in the past month, making it the third-worst performing among 10 Asia-Pacific currencies tracked by Bloomberg.

`Biggest Challenge'

Boediono, a former economics professor at Gajah Mada University in Yogyakarta, earlier today told lawmakers that the central bank needs to increase communication with governments both at the central and regional level to slow food-price increases, which have been the main cause of inflation. In an interview in November, Boediono said easing supply constraints was “key'' in keeping inflation under control.

“The biggest challenge is how to optimize coordination between the central bank and the government,'' said Adrianus Mooy, a director at StrategicAsia, a Jakarta-based consultancy, and former governor of Bank Indonesia. “More actions are needed from the government now as monetary policies alone cannot tame inflation if the cause of the inflation is not excess demand.''

Abdullah, who became governor in 2003, brought inflation down from 18.4 percent in November 2005. Bank Indonesia's key interest rate, now at 8 percent, peaked at 12.75 percent in December 2005 after the government doubled fuel prices.

“Boediono is the right person to chair Bank Indonesia,'' Abdullah said. “That's because the challenges ahead are huge and Boediono is an expert'' in handling such situations.

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