Sri Mulyani Indrawati: Asia's best finance minister

Indonesia's finance chief returned to a job she held from 2005 to 2010, and wasted no time in stamping her authority. She's a deserving Finance Minister of the Year.

When Sri Mulyani Indrawati became Indonesia’s finance minister last July, returning to a job she held between 2005 and 2010, the country had missed its revenue target for seven years running. It was clear to her what the first order of business should be.

“She made sure our budget was credible,” Robert Pakpahan, Indonesia’s director general of budget financing and risk management, told FinanceAsia

In particular, she emphasised improving the efficiency of tax collection, a crucial step in a country that has long struggled to get its wealthiest citizens to declare their assets. 

See the full rundown of our Finance Minister of the Year study.

In the first six months of 2016, Indonesia had struggled. Government revenues had fallen by 5% at the same time as government expenditure rose by around 15.1%. The chances of the country hitting its 3% deficit target appeared slim.

But after six months with Indrawati at the helm, the government had managed to easily beat its fiscal deficit target, ending the year with a deficit of just 2.5% of GDP.

Certainly, not all of the credit for this success should go to Indrawati. Indeed, a crucial tax amnesty programme had already been launched before she started the job. But her fearsome reputation was undoubtedly crucial to the success of that programme. 

The early take-up of the tax amnesty was far lower than the government had hoped for. But in an August interview, Indrawati said she was “not going to play around”, warning wealthy Indonesians she had “a lot” of video tape evidence of them admitting to dodging taxes. The threats appeared to work.

By the end of the year, around Rp103 trillion ($7.7 billion) of tax revenue had been collected under the amnesty. That was still only around 62.4% of the government’s overall target but it was also well over the central bank’s own projections. 

Indrawati also pushed for cuts in spending, slashing government expenditure by 3% last year. This two-pronged approach to balancing the budget is economics 101 — but it is also a rarity in a region where tax collection too often disappoints, and governments too often overspend. 

The comeback

Indrawati has been here before. She won plaudits from international investors during her previous five years in office, earning a reputation as a courageous graft-buster. But by 2010, she appeared to have ruffled too many feathers, and left to take a job with the World Bank

Pakpahan, who knew Indrawati during her first term as finance minister, says her time at the World Bank has made her even stronger, adding more maturity and experience to what was already an impressive set of skills.

Her comeback has certainly been good for the country. 

Indonesia achieved a dramatic narrowing of its current account deficit in the last quarter of 2016. Household consumption is improving. Infrastructure investment is on the rise.  

There are plenty of risks for the country. Tax revenue is still an issue, weakening last year once the proceeds of the amnesty are excluded. External risks loom large. But there is no one better suited to help Indonesia weather the storm. 

“She works extremely hard,” said Pakpahan. “She really pushes us to work innovatively.”

Indrawati’s return to the finance ministry has not been without moments of controversy. A public spat with JP Morgan, which was dumped as a primary dealer after releasing a sceptical research report, appeared unnecessary. 

But it may have been a calculated piece of politics from a woman who is sure to make enemies in the coming years.

“It was an over-reaction on her part,” said a Hong Kong-based economist. “But she still has to answer to a domestic audience about whether she is standing up for the country.”

She is certainly doing that. Indrawati has not been in office long, but she has returned to the job with a stellar reputation, an indomitable work ethic, and a commitment to reform that will make her few friends among Indonesia’s moneyed class.

She is a worthy winner of FinanceAsia’s Finance Minister of the Year award. For the good of the country, we can only hope she will be competing for this award for many years to come.


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