Why Mulyani Indrawati is again Asia’s best finmin

Not once, not twice but now three times the lady — for the third year in a row, FinanceAsia‘s finance minister of the year is Indonesia’s Sri Mulyani Indrawati.

A winner in 2017 and 2018 too, Indrawati is on her second stint as her country’s finance chief, having previously stepped down from the role in 2010 to become managing director of the World Bank.

It was incumbent Indonesian President Joko Widodo who brought back the politically unaffiliated economist from New York to take economic charge of the world’s fourth-most populous nation.

Indrawati, now 56, has a reputation for getting things done and, going by the evidence of the past 12 months, she hasn’t lost her touch.

Under her stewardship, Indonesia in 2018 posted its smallest fiscal deficit in six years, despite turbulence in its financial markets as capital seeped out from emerging markets generally — not bad for the region’s only female finance minister currently.

On the downside, the rupiah at one point plunged to its weakest level in 20 years as those capital outflows intensified and the US dollar rose, fuelled by US interest rate increases and the fallout from Washington’s trade war with China.

But with help from Bank Indonesia, which raised rates six times last year in a determined bid to win over international investor confidence, the situation was corrected somewhat and by end-2018 the rupiah was just 6% weaker compared with a year earlier.

Some emerging market fund managers said it showed the degree to which the Indonesian financial authorities had learned the lessons of the 1997 Asian financial crisis.

Jakarta raised tariffs on more than 1,000 items in September 2018 after the rupiah plummeted to levels not seen since the late 90s. This pushed the central bank to lift interest rates six times in as many months from 4.25% to 6% to halt the slide in the currency.

The tariffs put in place by Indrawati to deal with the currency situation drew a favourable response from Moody’s. “The measures do not remove the risk of renewed rupiah depreciation but reduce the likelihood of intense downward pressure on the currency,’’ the ratings agency said in a report late last year.

On tax collection, Indrawati has also played a deft hand. While there was slower-than-expected growth in the rate of collection, beefed-up compliance coupled with a tax amnesty she introduced in 2016-17 did boost revenues.

Indrawati also drove the move in February to make Indonesia the first Asian country to sell green bonds – bonds which are specifically earmarked to be used for climate and environmental projects – internationally in a $1.25 billion deal.

The sukuk, which conformed to Islamic principles of finance, carried a coupon of 3.75% compared with the 4.05% rate that bankers initially used as guidance for investors.

Fortuitously, higher coal and crude oil prices helped to push up government revenues, meaning that the government had enough funds to cover the cost of 36 completed national strategic projects. These ranged from toll roads, airports and seaports to reservoirs.

Still, like a number of other Southeast Asian nations, Indonesia has elections this year, which could introduce some fiscal instability. The degree of this potential rockiness remains to be seen.

Steve Vickers of risk consultancy Steve Vickers and Associates reckons that investors should expect a “nasty” electoral fight. “However, sensible government policies and a determination to tackle extremism mean risks should remain manageable,’’ he said.

In that respect, investors should take solace from the safe pair of hands at the finance ministry.