The mystery of Indonesia's departing finance minister

Indonesia has been shaken today by the unexpected news that Finance Minister Sri Mulyani Indrawati is stepping down to become one of three manging directors of the World Bank.

Sri Mulyani was a key driver of reform in President Suslio Bambang Yudhoyono's cabinet and many international investors believe she helped to shepherd Indonesia through the global crisis unscathed.

However, her position had come under intense political pressure because of her backing for the $730m bailout of a small collapsed bank, Bank Century, in 2008. Her opponents charged that the bailout was illegal and alleged (with scant evidence) that Sri Mulyani and/or the president made some personal financial gain out of it.

Sri Mulyani has insisted that the bailout was driven by a desire to avoid financial contagion and that dark political forces were militating against her (i.e. Aburizal Bakrie, one of Indonesia's richest businessmen and the chairman of the opposition Golkar Party, who also happens to be involved in a messy tax dispute with Sri Mulyani's ministry).

Yet just when it seemed that Yudhonoyo, who has a strong preference for back-room compromises over open political bunfights, was willing to stand by his woman, she has gone.

The key question is whether she is leaving the finance ministry as a sacrificial lamb to assuage Bakrie and Golkar or whether she has just had enough of the endless political backbiting.

The Indonesian stock market, which has hit record levels over the last month, fell 3 percent earlier today because of concern about the loss of Sri Mulyani.

Certainly, businessmen I spoke to today were disappointed that she is leaving and worried that the search for her replacement could drag on for months and/or that an inept political appointee may be brought in rather than another reformist technocrat.

But I suspect that these initial fears will ebb away as investors realise that the strengths of the Indonesian economy and the continuation of the slow but steady reform agenda are about much more than one individual.  

After all, Indonesia has been without a central bank chief since May last year, when the then governor Boediono stepped down to run for Vice President, and no-one seems to have minded, judging from the record stock market rally and the gathering strength of the rupiah.