World Perspective

02/19/08 03:53 am (EST)

JAKARTA (Thomson Financial) - The Indonesian central bank could have
an inexperienced governor in May if the Lower House of Parliament
(DPR) approves one of two candidates proposed by President Susilo
Bambang Yudhoyono.

Both candidates have not worked at Bank Indonesia nor were they
involved in formulating monetary policy.

Analysts have questioned the capability of both nominees to lead the
central bank at a time when the country needs to have a good monetary
policy in place to cope with the turmoil in global financial markets.

Some analysts, however, said Yudhoyono may have his own reasons for
selecting the two candidates. In Indonesia, the central bank governor
is nominated by the president for approval by parliament.

The first candidate, Agus Martowardoyo, is currently president of the
country's largest bank, PT Bank Mandiri, while his rival, Raden
Pardede, serves as the deputy chairman of state asset management
company, PT Perusahaan Pengelola Aset (PPA).

A parliamentary commission will conduct a fit and proper test and
endorse one candidate to be approved by parliament during a plenary
session. A decision is expected in mid-March.

Incumbent central bank governor Burhanuddin Abdullah, who has been
named a suspect in a graft case, will end his five-year term in May.

Surprising nomination

Yudhoyono's decision not to pick any of the current deputy governors
to succeed Abdullah is quite surprising, said Fauzi Ichsan, an
economist at Standard Chartered Bank.

Senior deputy governor Miranda Goeltom and deputy governors Hartadi
Sarwono and Muliaman Hadad have been previously speculated to be
among the front-runners to replace Abdullah.

Ichsan said some people are questioning the capability of the two
candidates given their limited experience in dealing with monetary
policy.

"Such reservation is valid. Being head of a commercial bank and a
central bank require different qualifications, " he said.

To become a CEO of a commercial bank, one needs to have management
capability, has an understanding of banking operational risks and has
experience in dealing with clients.

"But the central bank does not have clients. It sets policies and
issues regulations.

"Apart from having integrity and credibility, a central bank governor
must have experience in macroeconomic management, monetary policies
and exchange rate management. Such capability is crucial for an
emerging country like Indonesia, which is sensitive to changes or
shocks in global markets," said Ichsan.

He said under the current situation where markets are volatile, he
would expect the next central bank governor to have had an experience
in dealing with monetary crisis.

"There is no doubt Agus Martowardoyo has the credibility for being
the CEO of Indonesia's largest commercial bank. He has shown his
leadership experience. But frankly, he does not have experience in
dealing with monetary policy," Ichsan said.

Emir Moeis, a legislator from the opposition party in parliament --
the Democratic Party of Struggle (F-PDIP) -- said some fellow
lawmakers also questioned the inexperience of the two candidates in
terms of monetary policy management.

"As outsiders, they will need time to adjust in the new job.
Unfortunately the new governor will not have the luxury of time to adjust given the current turbulence in global financial markets," he said.

Moeis said the parliament actually has the option to select either of
the two candidates as the new governor or reject both of them and ask
the president for new nominees.

Independence a plus While the two candidates may not have central bank experience, their independence from any political party could be a bonus, said ING Bank
country representative Irwan Habsjah.

"I think both have the capability to become central bank governor.
Martowardoyo is one of the country's top bankers, while Pardede is
one of the country's best economists," said Habsjah.

BNI economist Ryan Kiryanto said he believes that President Yudhoyono
must have consulted his aides before naming the two nominees, meaning
they must be the best candidates for the job.

He said although they have never held positions at the central bank
before, they could still make good policy given that there is a
system in policy making.

"The central bank does not rely on one person. The central bank board
makes decisions collectively, " Kiryanto said.

As far as their capability is concerned, Kiryanto said "it is the
task of the parliament to test that."

Among the previous BI governors who did not work at the central bank
before their appointment were Radius Prawiro and Soedradjad
Djiwandono, and both ended their terms with good track records.