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By David Lawder and Tabita Diela
JAKARTA, Feb 27 (Reuters) - Indonesian Finance Minister Sri Mulyani Indrawati said on Tuesday she expected the nominee for the next central bank governor to continue to focus on stability and taming inflation, while adopting a “pragmatic” approach to boosting growth.
President Joko Widodo’s selection of Perry Warjiyo, a longtime deputy governor of Bank Indonesia, to succeed Agus Martowardojo, was confirmed on Saturday.
In her first comments on the nomination, Indrawati said in an interview that she hoped Warjiyo would maintain the bank’s strong reputation for policy credibility built up under his boss and predecessor.
“We, of course, expect because Bank Indonesia is the central bank, they are going to continue maintaining stability but at the same time, they are going to be pragmatic enough to see the opportunity for them to continue to support what the government is actually addressing: poverty, inequality, and growth,” she said.
“I think the most important is job creation and growth.”
The comments come as the government is redoubles efforts to boost growth, which has struggled to exceed 5 percent in recent years, well below the 7 percent Widodo pledged to deliver while campaigning in 2014. A collapse in commodities prices just as he took office is partly to blame.
Indrawati also emphasized the independence of its central bank was one of the key structural changes that helped Indonesia recover from a painful recession after the 1997-1998 financial crisis forced it to turn to the International Monetary Fund for a bailout.
Indrawati said that Warjiyo’s experience at Bank Indonesia and previously at the IMF would prepare him well for the role. She added that she had a good relationship with Warjiyo, whom she described as a “likeable person” who tells “a lot of jokes.”
As a deputy governor, Warjiyo’s role includes monetary policy mix formulation, financial market deepening and Islamic financial market development.
Indrawati also said it was important for Indonesia to boost consumption growth back towards the 6 percent level seen before the 2008-2009 financial crisis. It has been stuck around 5 percent in recent years.
The government has been increasing cash transfers to help its poorest keep pace with inflation. But she said it has yet to understand why construction wages have stagnated, despite increased infrastructure spending and how to capture the growth of digital trade in its consumption statistics.
Another way to boost growth is through increased business investment, and Indrawati said the government was considering adding new tax allowances for investment in sectors such as petrochemicals, pharmaceuticals manufacturing, and downstream processing for agribusiness and mining commodities.
These are among 20 previously unnamed sectors that she said last week would be considered for new eligibility for revised tax incentives.
“These are all the areas which I think have huge correlation with domestic demand, which is growing very fast,” she said.
The government also will begin a “benchmarking” approach of studying neighboring countries’ tax incentives, including those offered by Thailand, to see if they should be matched, she said.
Turning to U.S. President Donald Trump’s trade policies, Indrawati said tariff actions that spark deeper trade disputes could put global growth at risk. This, in turn, could cut demand abroad for the same U.S. exports that Trump wants to boost.
Indonesia had a $13.3-billion trade surplus with the United States, largely on apparel, textiles, seafood and palm oil. Its biggest U.S. imports are soybeans, aircraft and cotton.
“If the United States, as the largest economy in the world, creates a weakening global economy, even a recession, it will backfire to the United States’ own interests,” she said. “You can’t say ‘My country first’ and the rest is not important.”
Indrawati said the fair and reciprocal trading system that Trump has insisted on would be best ensured by settling disputes through established bodies such as the World Trade Organization.
Trump frequently complains about the Geneva-based WTO, calling it a “catastrophe” on Monday. He is considering several unilateral tariff actions that almost certainly will draw challenges under WTO rules, including steel and aluminum tariffs on national security grounds and potential trade sanctions against China over its intellectual property practices. (Reporting by David Lawder and Tabita Diela; Editing by Kim Coghill and Clarence Fernandez)