Sri Mulyani Indrawati Aims to Shore Up Indonesia’s Finances

Indonesian tax dodgers, look out: The sheriff is back in town.

Two years after winning office on a pledge to clean up government, President Joko Widodo is getting down to business. With his country facing a $16.6 billion deficit this year amid grand plans to bolster public spending and economic growth, the president has turned to Sri Mulyani Indrawatito help fill government coffers. Jokowi, as he’s popularly known, called Indrawati back late last month from her post as COO of the World Bank in Washington for a second stint as Finance minister.

During her previous go-around, from 2005 to 2010, Indrawati, 54, built a reputation as a tax hawk. She also showed that she’s unafraid to make political enemies if it means getting the job done.

“Indrawati doesn’t really like to indulge in the kind of bureaucratic, transactional nature that’s common in Jakarta,” says Achmad Sukarsono, an analyst at geopolitical risk consulting firm Eurasia Group in London and a native of Indonesia.

In the midst of his second cabinet shake-up in as many years, Jokowi could use such a no-nonsense ally as he fights off criticism from opposition MPs and his own Indonesian Democratic Party of Struggle. Their complaints: He has underwhelmed on fulfilling commitments to streamline business regulation, improve education, battle corruption and roll out an ambitious infrastructure spending program. Jokowi also promised to grow the economy by 7 percent annually.

Indonesia is chugging along, though well below that target. Gross domestic product expanded 5.18 percent year-over-year during the second quarter, beating economists’ estimates of 5 percent. Jokowi’s infrastructure package has provided a boost. Given the plan’s projected 5,519 trillion rupiah ($420 billion) price tag through the end of 2017, though, Jakarta needs money.

Indonesia has a 10 percent tax collection rate, one of the lowest for any emerging economy. An eight-month tax amnesty that took effect shortly before Indrawati arrived could coax Indonesians to repatriate an estimated $40 billion stashed in offshore accounts. Taxpayers have until March to qualify for the amnesty, but so far, they have remitted only $57 million.

In the meantime, Indrawati is taking no prisoners. “Basically, you have heaven and hell. This is the opportunity for you to go to heaven with only 2 percent [tax penalty] and all of your sins have been deleted,” she said in an August 19 interview with Reuters, her first since taking office. “If you’re not using the opportunity this time, I’m not going to play around,” Indrawati warned, adding that she had video footage of businesspeople admitting to being tax cheats.

If only she had had such proof six years ago. During her first turn as Finance minister, Indrawati cracked down on bribery in the tax office, ushering in a richer pay scale for revenue officials to deter graft. She also oversaw probes of several major Indonesian businesses. Among her targets: conglomerate Bakrie Group, led by Aburizal Bakrie, who also heads Golkar, the party of the Indonesian political establishment dating back to ex-president Suharto’s rule from 1967 to 1998.

Indrawati sought to launch a full investigation into tax irregularities at a division of Jakarta-based Bakrie, but in 2010 the Supreme Court ruled that there was insufficient evidence. The ensuing political pressure pushed Indrawati to Washington and the World Bank. In 2011 a party formed with the goal of getting her elected president in 2014; because of snags in the registration process, it failed to win clearance for her candidacy.

To clear the way for Indrawati’s return, the Indonesian president had to shed members of his inner circle from the cabinet in favor of figures more palatable to the nation’s establishment. “The price that Jokowi had to pay to bring in this rock star with baggage was to get rid of some reformers,” Eurasia Group’s Sukarsono says. “It seems like Jokowi is putting his eggs all in one basket.”

Indrawati’s cabinet colleagues include Wiranto, minister of Security, Political and Legal Affairs, a former general indicted in 2003 by a United Nations court in connection with war crimes in East Timor. Her predecessor in Finance, Bambang Permadi Soemantri Brodjonegoro, is now minister of National Development Planning.

Observers are confident that Indrawati’s voice will drown out any political noise. “She will try to push for what she wants,” Sukarsono says. “She is an alpha female in a country that very much remains male-dominated.”

Follow Anne Szustek on Twitter at @the59thStBridge.