In the Trenches: Relentless Reformer

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In the Trenches: Relentless Reformer

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Bibliographic details

• Authors: NICHOLAS OWEN
• Published: November 22, 2024

Economic transformation and key statistics

• Indonesia increased its GDP fourfold over the past two decades, to $1.4 trillion.
• Population cited as 270 million people.
• Geographic span described as stretching 3,300 miles from west to east.
• Share of the population living on less than $2.15 a day has fallen tenfold, to less than 2 percent.
• Jakarta’s average income compared to Poland and "not far off from Portugal."
• Sri Mulyani Indrawati’s timeline:
  • First served as finance minister in 2005.
  • Worked as a managing director at the World Bank in 2010–16.
  • Returned as finance minister under President Joko Widodo and was reappointed in October under President Prabowo Subianto.
• Served as one of three external advisors to the IMF–World Bank Bretton Woods at 80 initiative.
• Indonesia’s G20 presidency cited as occurring in 2022.

Macroeconomic strategy and institutional reforms

• Restoring macroeconomic stability and credibility of macroeconomic policy identified as the most important factor behind Indonesia’s turnaround.
• Institutional and policy measures highlighted:
  • Established an independent central bank.
  • Consolidated financial sector supervision and monitoring.
  • Maintained fiscal prudence regarding budget deficit and debt-to-GDP ratio.
  • Created market infrastructure to increase competitiveness.
  • Opened up to international trade and revised the investment law (reform momentum continued during the COVID-19 pandemic).
  • Invested in infrastructure: roads, ports, electricity, telecommunications.
  • Invested in human capital: spends 20 percent of the budget on education.
  • A scholarship fund has paid for 50,000 people to study at the world’s best universities.
  • Developed public-private partnerships and improved the business and investment climate.
• Resulting macro outcomes:
  • Current account and primary fiscal positions moved from large deficits (when in the "fragile five") to accounts in surplus.
  • Financial sector described as resilient.
  • Emphasis on deliberate policy to avoid fragility rather than it occurring by chance.

Industrial policy, extractive sector strategy, and incentives

• Downstreaming policy in extractive sectors (notably EV-battery related minerals) described as a deliberate long-term strategy with negotiations beginning in some cases in the 1990s.
• Key principles and measures:
  • Aim to add more value domestically rather than exporting unprocessed resources.
  • Use of incentives: tax and other incentives to make domestic processing competitive.
  • Regulatory requirement: mining companies are told they cannot export unprocessed minerals and must build smelters.
  • Infrastructure upgrades and improvements to competition, labor, and environmental laws to create a "welcoming ecosystem."
  • Positioning presented as "win-win": strengthen Indonesia’s resilience while allowing investors to make a profit.
• Rejection of forced expropriation: policy does not force companies to build "at all costs and then expropriate their investment."

Political economy of reform and governance practices

• Strategies for advancing controversial reforms as a technocrat:
  • Leverage political momentum toward democracy and openness that arose after the Asian crisis.
  • Engage directly with status quo interest groups and skeptics—"reach out to them"—to build confidence and explain objectives.
  • Anticipate difficulties, be honest about distributional effects (for example, some people may suffer from price increases), and develop sustained dialogue.
  • Use media outreach (chief editors, reporters) to build public support; public opinion and free press provide political backing.
  • At the finance ministry, enforce high standards of conduct and performance—"sweeping out the work-shy and the greasy-palmed."

Geopolitics, multilateralism, and the Bretton Woods institutions

• Views on geopolitical fragmentation:
  • Historical context: Indonesia’s nonaligned movement initiated 75 years ago; constitution emphasizes freedom, peace, and social justice.
  • Concern that recent shifts toward nationalism and inward-looking policies challenge the institutions and ideas that supported globalization and poverty reduction over the past 30 years.
  • Indonesia’s larger role: size and leadership among emerging economies enable it to act as mediator and offer constructive solutions (illustrated by G20 presidency in 2022).
• Recommendations for IMF and World Bank relevance:
  • Assess whether institutions have enough capital and human resources and whether they possess the right instruments for diverse problems.
  • IMF’s agenda should expand beyond traditional focuses (exchange rates, monetary system, financial stability) to include climate change, demographic challenges, digital technology, and social safety nets—creating prioritization challenges.
  • Maintain and strengthen international cooperation among sovereign members and build catalytic partnerships with private nonstate actors, recognizing concentrated capital and power outside the sovereign space.

Leadership, role modeling, and personal reflections

• Public role and expectations:
  • Indrawati acknowledges being a visible role model for women; when first appointed in 2005 there were no women in top management at the finance ministry, and while there are now women in top management, they remain a minority.
  • She emphasizes personal discipline and public scrutiny, while noting she continues personal pursuits (singing, running).
  • On advising women: receives many questions about juggling responsibilities; she prefers to inspire by example rather than intentionally promote herself as a role model.
• Closing note: The interview has been edited for length and clarity.

Source: F&D Magazine interview "Relentless Reformer" with Sri Mulyani Indrawati, December 2024.