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Cablegate: New Central Bank Governor Nominees - No Insiders

VZCZCXRO5647
RR RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHJA #0355/01 0550747
ZNR UUUUU ZZH
R 240747Z FEB 08
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 8065
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHKO/AMEMBASSY TOKYO 1545
RUEHBJ/AMEMBASSY BEIJING 4733
RUEHBY/AMEMBASSY CANBERRA 2031
RUEHUL/AMEMBASSY SEOUL 4411
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 02 JAKARTA 000355

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR EAP/MTS AND EB/IFD/OMA
TREASURY FOR IA-SETH SEARLS
SINGAPORE FOR SUSAN BAKER
COMMERCE FOR 4430-BERLINGUETTE
DEPARTMENT PASS FEDERAL RESERVE SAN FRANCISCO FOR FINEMAN
DEPARTMENT PASS EXIM BANK
DOJ/OPDAT FOR JOHNSON/LEHMANN/ALEXANDRE
DOJ/AFMLS FOR SAMUEL

E.O. 12598: N/A
TAGS: EFIN EINV ECON PGOV PINR ID
SUBJECT: NEW CENTRAL BANK GOVERNOR NOMINEES - NO INSIDERS


1. (SBU) Summary: President Yudhoyono nominated two outsiders to
replace outgoing BI Governor Burnhannudin Abdullah, whose five-year
term ends May 17, 2008. Abdullah has been named in a corruption
case involving payments to Parliament to pass banking legislation in
2003/4. Raden Pardede, an economist who has held several senior
positions in the Government of Indonesia (GOI) is favored by fellow
economists. Agus Martowardojo is President Director of state-owned
Bank Mandiri, Indonesia's largest bank. The Parliament (DPR) must
make a decision by March 15 on the candidates but has the option of
rejecting both and requesting a new nomination. End Summary.

New BI Governor Nominees: No Insiders
-------------------------------------

2. (SBU) On February 15, President Yudhoyono (SBY) sent two names to
the DPR as candidates for BI Governor for the next term, neither of
them BI insiders such as the seven current Deputy Governors. Media
commentators and financial sector watchers believe that SBY named
outsiders because of the ongoing corruption investigation against BI
officials including Governor Abdullah (septel).

3. (SBU) Raden Pardede is a respected macro-economist, Chairman of
the Executive Committee of Indonesia's Financial Stability Forum
(not to be confused with the international one) and Vice President
of the State Asset Management Company (PPA). PPA, the more
transparent successor organization to the Indonesian Bank
Restructuring Agency (IBRA), has the job of divesting shares and
real property that came into GOI hands after bank bailouts in the
1997/98 financial crisis. PPA sunsets in 2009.

4. (SBU) The other candidate, Agus Martowardojo, took over as
President Director (CEO) of Bank Mandiri after KPK's information led
to the conviction of Mandiri's previous CEO, Eddie Neloe of
corruption. Martowardojo has done a good job at Mandiri, cleaning
up non-performing loans (NPLs) and improving management according to
the International Monetary Fund (IMF) and many banking sector
watchers. While academic economists prefer Pardede, banking
contacts believe that Martowardojo is the best choice, as the proven
manager of a large organization. (See biographic information
below.)

Parliament Not Pleased
----------------------

5. (U) Several key members of the Parliament have indicated their
disapproval of both of SBY's nominations. BI insiders, according to
them, are more market friendly. Some analysts see SBY's decision as
"insulting for BI as an institution." Parliament will officially
decide whether to accept or reject the candidates by March 15. By
Law No. 3/2004 on Bank Indonesia, Parliament has the right to
decline candidates nominated by the President and would give the
President one more chance to submit other candidates (one DPR member
explicitly mentioned this possibility to us). If the Parliament
again disapproves the nomination, it will appoint a former Governor
or one of the Deputy Governors.

Abdullah Reasonably Good
Performance as BI Governor
--------------------------

6. (SBU) Though sometimes criticized for poor market communication,
Abdullah has been generally well-regarded. Under his supervision
beginning in May 2003, BI has shepherded the economy toward strong
growth with reasonable price stability, especially in the face of
oil price shocks. BI now has the highest foreign exchange reserves
in its history and even repaid outstanding IMF loans. Bank
performance and supervision has been sound. He has earned the trust
of most commercial bankers. While some monetary policy decisions
have been late (as in the 2005 response to high oil prices) and
others regarded as less-than-fully independent (as in the December
2007 interest rate cut), Abdullah was generally liked and well
respected by bankers and market participants. One Indonesian senior
banker said that he has been one of the most credible BI Governors
in recent history. Another Indonesian banking contact said in
despair, "This is Indonesia, the good ones get hurt and the bad ones

JAKARTA 00000355 002 OF 002


stay on."

Why Force Abdullah Out?
-----------------------

7. (SBU) One rumor from two Embassy contacts (although heavily
discounted by others) is that SBY was considering Abdullah as a
possible running mate in 2009. Some say Golkar insiders, including
Kalla supporters, did not want SBY to name BI Governor Abdullah as a
running mate for 2009, and thus ensured damage to Abdullah both in
his current position, and as a possible future Vice Presidential
candidate. The motivation behind the investigation, which
originated BPK, is also bit murky. Dr. Anwar Nasution, head of the
BPK who first publicized the information against BI, is a former
Deputy Governor of BI himself. A Harvard-trained economist, he has
been unhappy in his current job. Some have speculated that Nasution
"wanted back in" to BI so sought to tarnish the current lot or
simply had an axe-to-grind with former colleagues.

Bio for Raden Pardede
---------------------

8. (U) Dr. Pardede is a prominent Indonesian economist. He has held
senior executive positions at PT Danareksa, a major Indonesian
investment bank, and has served as a consultant to the World Bank,
Asian Development Bank and various Indonesian Government
departments. Raden Pardede is Vice President Director of the
State-Owned Asset Management Company or PPA (2004 to the present),
on the Board of Commissioners of Bank Central Asia (2004 to the
present), Chairman of the Executive Committee of Indonesia's
Financial Stability Forum, Chairman of Finance for Indonesia's
Infrastructure Development Team (2004 to the present), member of the
macroeconomic policy team to the Minister of Finance (2006-present),
and Advisor to the Coordinating Minister of Economic Affairs
(2004-2005).

9. (U) His earlier managerial positions included Executive Director
and Chief of Economist at PT Danareksa (2002-2004), Deputy
Coordinator of Assistance Team of Minister of Finance Republic of
Indonesia (2001-2004), Chief Economist/Division Head at PT Danareksa
(1995-2002), Founder of Danareksa Research Institute (1995), World
Bank Consultant (1994-1995), Asian Development Bank Consultant
(2000-2001), Staff of Planning in the Department of Industry
(1985-1990), Process Engineer at PT Pupuk Kujang/Fertilizer Industry
(1985), Guest Lecturer at the Institute for Technology in Bandung,
the University of Indonesia and Business Institute Indonesia.
Pardede has written more than 50 articles in English and published
in several International Journals and Domestic Media. A
sought-after speaker for international seminars, he is active in
speaking on macro and micro-economic issues. He holds a Bachelor's
degree in Chemical Engineering from Bandung Institute of Technology
and a PhD in Economics from Boston University. Pardede is a
Christian.

Bio for Agus Martowardojo
-------------------------

10. (U) Martowardojo is currently the President Director of Bank
Mandiri (appointed in May 2005) replacing Eddie C.W. Neloe who was
involved in alleged corruption case. After graduating from the
Economic Faculty of University of Indonesia in 1984, Martowardojo
started his banking career at Bank of America and worked there until
1986. Between 1986-2002, he held several key position in Indonesian
domestic banks; Niaga Bank (1986-1994), Bumiputera Bank (President
Director; 1995-1998), Export Bank (President Director; 1998) and
Permata Bank (President Director, 2002 - 2005). In 2002 he was also
the chief advisor and the vice chairman of Indonesian Banking
Restructuring Agency (IBRA). Martowardojo took several banking and
management courses, at the State University of New York, Stanford
University, and the Institute of Banking and Finance (Singapore).
Martowardojo was born in Amsterdam in 1956 and is a Muslim.

HUME

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