Finance Minister of the Year — Part 2

FinanceAsia ranks the performance of the ministers of finance in Asia-Pacific’s 12 largest economies. Today we look at those ranked 8-5.

Ranking Asia-Pacific’s finance ministers is designed to provide moral support to the success stories – and to give a nudge to those who could do better, or at least prompt discussion among their constituency.

Finance ministers are responsible for government finances, fiscal policy and in some cases financial regulation.

With the help of many analysts, investors and bankers, whom we kept anonymous, our FinanceAsia team weighed each minister’s contribution to the budget and fiscal policy; use and development of capital markets; where applicable, structural reforms and regulation; investor perceptions; and that most intangible of things, independence.

Our rankings are therefore relative. A minister at or near the top can take pride in his work, but by no means has his list of challenges (or even failures) gotten any shorter. Conversely, no one should aim to be at the bottom of our rankings, but we understand they face the hardest choices, or must operate in an environment that is often inimical to fiscal probity.

Nonetheless, certain individuals can and do make a difference. They are not just policy wonks, but masterful politicians who know how to massage the bureaucracy, who have the vision to cut through Gordian knots, who have the chops to get their agenda enacted, who possess the nous to maintain the prime minister’s trust, and who put the national interest above their personal relationships.

8) Najib Razak — Malaysia

The tanking of crude oil prices to below $50 a barrel threatens Malaysia’s economy, not least because its budget for 2015 was drawn up when the oil price was above $100. 

In the wake of the plunge, it sometimes seemed finance minister Najib Razak, who also happens to be the nation’s prime minister, was nowhere to be seen. That is, until January 20, when he finally revised the budget to account for the change. 

Some economists, say it’s too late, noting heavy capital outflows from the market and a vulnerable ringgit.

Another issue is that state investment fund 1MDB, whose chairman is Najib, missed a third loan repayment deadline. This has fueled concerns that the government would have to bailout the company, inflating the country’s massive public debt to beyond 55% of GDP.

Overall his track record as finance minister has been positive. Since coming into office in 2009 he has halved Malaysia’s fiscal deficit to a targeted 3.5% in 2014 and reduced the nation’s heavy dependence on oil exports.

Although his economic management can be too dirigist, Najib is putting money into important infrastructure efforts and is proactive in trying to create new-economy jobs. 

He is finally presenting budgets with realistic projections for oil prices and so far investors accept his premises.

7) Tharman Shanmugaratnam — Singapore

Singapore is at a tipping point. For the last decade, the Lion City was focused on increasing its rate of economic growth and positioning itself as a financial centre. It has succeeded. Most people own their own home, thanks to sensible government housing policies; the city is a vibrant hub for wealth management, tourism and healthcare; and its infrastructure and governance is first rate.

But the shift to empowering households and consumers, while growth slows, the population ages and foreigners become an outsized portion of the workforce (whether blue or white collar) are putting new strains on social cohesion.

That in turn presents new challenges to the finance ministry. Tharman Shanmugaratnam has long been part of the government’s inner circle. On February 23 he will present a budget unlike any before, with a proposal for universal healthcare at its heart.

Singapore has actually been here before, having set up a national pension system in the 1950s, which still finances its sovereign wealth funds and strategic investments. But instead of saving, now it’s spending – at a time of markedly slower economic growth and immigration creating flashpoints over employment and inequality.

While no single budget can plausibly solve a country’s challenges, Shanmugaratnam’s will have to make a credible start.

6) Arun Jaitley — India

Arun Jaitley only became finance minister last May, in circumstances similar to Indonesia.

Unlike Bambang Brodjonegoro, his equivalent in Jakarta who also has not been in the job long, Jaitley has not enjoyed the freedom to make bold moves. However, he is making the right pledges within a more complicated administration.

Notably he has played a big role in reversing investor attitudes toward India: a year ago, markets focused on India’s rising inflation, stagnating growth and rising external deficit of 7% of GDP.

Under Jaitley, India has a fiscal deficit target of 4.1% of GDP and a roadmap to get that ratio below 3% in the coming years.

Unlike the previous administration, investors believe Jaitley has a credible plan to actually achieve such targets. That belief will be tested when he presents his budget on February 28. 

Can he deliver the introduction of a national goods and services tax, reduce fuel subsidies and streamline regulation of industry, while still winning the backing of other parties in parliament?

5) Lou Jiwei — China

In the Chinese system, the finance minister is constrained compared to his peers abroad, but Lou Jiwei has made an impact by keeping the central government budget under control and driving bond market reforms.

But these positives must be weighed against the uphill road the ministry must travel: China’s fiscal revenue growth fell below 10% for the first time in a decade last year, while the budget deficit rose by 12.5% to $221 billion. On paper the central government’s debt and deficits are well within reasonable limits, but this masks deeper frailties.

Out-of-control borrowing at local levels (often in the name of the central government); corruption; antiquated tax collection; and a shadow-banking system that obscures accountability all pose challenges to the ministry. For example, analysts suggest as much as Rmb12 trillion ($1.9 trillion) of local debt in the shadow-banking system is at risk of default.

Lou’s response, in sync with President Xi Jinping’s dual emphasis on fighting corruption and paying homage to the nation’s written constitution, is to make revenue generation more transparent, and fiscal policy more flexible.

This involves reducing local governments’ reliance on real estate to raise income, shifting taxes more to personal and corporate incomes, and preventing localities from borrowing in the central government’s name. Can Lou fight these fires and keep Beijing’s books in the black?

¬ Haymarket Media Limited. All rights reserved.
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